Investment Highlights

• We maintain our BUY call on Sunway Bhd (Sunway) with an unchanged fair value of RM1.65 per share based on SOP valuation (Exhibit 2). We made no changes to our FY18-20 earnings forecasts.

• Sunway reported its 9MFY18 revenue and core PATMI of RM4,040.1mil (+10.6% YoY) and RM401.5mil (-12.7% YoY) respectively. Despite making up only 70% and 68% of our and consensus full-year forecast, we reckon this to be in line, as we expect stronger earnings in the next quarter. 9MFY18 net profit would have been higher by 23.3% YoY if not for the adoption of the MFRS 15 whereby profits of property development projects in Singapore and China can only be recognised upon completion.

• The property development division reported 9MFY18 revenue of RM415.8mil (-22.6% YoY) and PBT of RM111.1mil (-17.5%) mainly due to the abovementioned reason. Nonetheless, Sunway reported strong new sales of RM1.6bil (+108% YoY) while unbilled sales of RM2.1bil (vs. QoQ’s RM1.5bil) provided good earnings visibility in short to mid-term.

• The property investment segment reported 9MFY18 revenue of RM674.5mil (+8.8% YoY) and PBT of RM212.8mil (+11.4% YoY) mainly due to additional contribution from new properties such as Sunway Velocity Hotel and Sunway Geo in Sunway South Quay, as well as from the opening of additional room inventory at The Banjaran Hotsprings Retreat & Spa in Ipoh.

• The construction segment 9MFY18 PBT grew 5.9% YoY to RM131.6mil driven by higher construction profits (arising from the Parcel F building job in Putrajaya, Package V201 of the MRT2 and International School of Kuala Lumpur building contract in Ampang), partially offset by lower precast profits (due to the completion of several projects coupled with higher rebar prices). YTD, Sunway Construction has secured new jobs worth a total of RM1.35bil while its outstanding construction order book stands at RM5.2bil.

• We believe the outlook for Sunway remain positive premised on its unbilled sales of RM2.1bil, strong income contribution from property investment and a robust outstanding order book of RM5.2bil. Maintain BUY.

Source: AmInvest Research - 22 Nov 2018