The research house said its recent meeting with company officials reaffirmed its belief that the recent selldown may have been overdone.
“We believe the recent selldown in construction stocks, including SunCon, presents a good opportunity to pick up the counter, hence warranting the upgrading of our stance to ‘buy’ from ‘neutral’,” it said in a note.
Construction and property development stocks surged last year as data centre investments ramped up, prompting investors to buy up stocks linked to such projects. Many of such counters including SunCon saw their share prices more than double in 2024.
However, things turned sour early this year after the outgoing Joe Biden administration announced further restrictions on US artificial intelligence chip and technology exports in a bid to block China’s access to advanced computing power.
This triggered a sell-off in construction stocks, where those with high exposure to data centre projects most affected.
US investment bank JPMorgan said last week that tightening US chip export restrictions could potentially affect two-thirds of the four-gigawatt data centre capacity planned in Malaysia.
It also downgraded its calls on SunCon and Gamuda Bhd, two construction groups with significant exposure to the data centre theme.
SunCon saw its shares fall as much as 24% from the beginning of the year. It has recovered a bit since and is currently down 19% year to date at RM3.75 with a market capitalisation of RM4.85 billion.
MIDF noted that SunCon’s current order book reflects a strong focus on data centre projects, with circa 70% of its portfolio related to this segment.
It said the company’s management said none of its data centre clients have expressed any adverse feedback regarding the restrictions on exports of AI chips.
“In fact, its clients (from the US, the Netherlands and Singapore) remain confident and do not expect any delays in their plans.
“However, management noted much of the current discourse on the AI chip restrictions is speculative and clearer guidelines from the US government are necessary to fully assess potential long-term implications, especially with the new administration under president Donald Trump,” it said.
Out of SunCon’s RM10 billion tender book, about 80% are data centre jobs, with the remainder comprising external building jobs, warehouses, factories, and precast works.
MIDF said despite its current focus on data centre projects, this does not signify a shift away from infrastructure and property projects.
“While it has taken on fewer property development projects currently, in a worst-case scenario surrounding data centre projects, it has the flexibility to revert to undertake more jobs within the Sunway Group,” it said.
It said the group continues to demonstrate “resilience and adaptability”, supported by a well-diversified project portfolio and strong confidence from its data centre clients.