RECENT weakness in SunCon’s share price presents an opportunity to accumulate the stock, supported by data centre (DC)-led earnings growth, meaningful cost-plus exposure and prospective dividend yields.
The shorter duration of DC projects allows new contracts to be priced using prevailing input costs, helping contractors maintain blended margins as newer projects ramp up.
Across the construction sector, stronger balance sheets and operating cash flow should also provide greater flexibility to manage higher working capital requirements.
Budget 2027, scheduled for Oct 9, could provide another catalyst if allocations result in clearer project award timelines.
However, rising commodity and construction costs remain a key risk. Brent crude recently climbed above US$100 a barrel following disruptions to Saudi Arabia’s East-West pipeline, raising concerns over fuel, haulage and subcontracting costs.
Unsubsidised diesel reached RM6.72 per litre in early April, compared with RM4.92 currently, highlighting potential upside risks to project execution costs.
Construction material costs have also risen, with the Department of Statistics Malaysia’s August release showing aggregate prices up 86% year-to-date.
SunCon appears to have relatively lower exposure to these cost pressures. Around 30% of its RM61.6 bil outstanding order book is estimated to comprise fixed-price contracts, compared with 58% for Gamuda.
SunCon’s RM1.2 bil net cash position also provides greater financial flexibility compared with Gamuda’s 73% net gearing.
Meanwhile, Malaysia’s DC growth is not solely dependent on frontier AI model development.
Enterprise cloud migration, data storage, digital services and AI inference continue to support demand.
AWS and Microsoft’s local cloud regions cater to these broader requirements, while Google’s planned facilities are expected to support Search, Maps and Workspace, as well as cloud and AI services.
Data residency, lower latency and business continuity requirements should continue supporting investment.
A slowdown in frontier AI development therefore would not necessarily eliminate demand for existing applications, transactions and AI services.
The expanding DC ecosystem is also generating opportunities across construction, M&E works, substations and grid connections.
TNB signed five Electricity Supply Agreements totalling 0.9GW in 1HFY26, while actual DC electricity load reached 1,256MW.
Its secured portfolio also includes 16 projects under construction with 2.21GW of maximum demand.
Timely power connections should support project commissioning, while future campus expansions could provide further opportunities to replenish contractors’ order books.—Sept 18, 2026
Main image: touchstonerenard.com
