Investment Highlights

• We maintain our BUY call on Sunway Bhd (Sunway) with a lower fair value of RM1.94 per share (from RM1.95) based on SOP valuations (Exhibit 2). We reduced our FY19–21 profit forecasts by 1.9%, 1.7% and 1.5% respectively. Our fair value and profit forecasts reduction are to reflect the recent revaluation and earnings downgrade on Sunway Construction.

• Sunway reported its 1QFY19 revenue and PATMI of RM1,123.6mil (-14.1% YoY) and RM136.4mil (+11.9% YoY) respectively. PATMI of RM136.4mil constituted 22% of both our and consensus full-year estimates. Nonetheless, we reckon this to be in line with expectations as Sunway’s earnings are generally lower in 1Q.

• The property development division’s 1QFY19 revenue came in at RM87.9mil (-33.6% YoY) while its PBT was RM32.8mil (+19.6%). The lower revenue is mainly due to lower sales and progress billings from local development projects while the stronger PBT is attributed to the reversal of provisions made in the previous year. Nonetheless, Sunway reported stronger new sales of RM263mil (+58% YoY) while unbilled sales of RM2.2bil (YoY: RM947mil; QoQ: RM2.1bil) will provide good earnings visibility in short to mid-term.

• The property investment segment recorded 1QFY19 revenue of RM196.7mil (+1.9% YoY) and PBT of RM57.4mil (+0.5% YoY) mainly due to a higher contribution from Sunway Geo in Sunway South Quay, as well as improved contribution from the group’s theme parks.

• The construction segment posted 1QFY19 revenue and PBT of RM346.2mil (-22% YoY) and RM43.7mil (+5.4% YoY) respectively. The weaker revenue was mainly due to lower progress billings from local construction projects and higher intra-group eliminations. Meanwhile, the higher PBT was boosted by lower intra-group profit eliminations. YTD, Sunway Construction has secured new jobs worth a total of RM1.01bil while its outstanding construction order book stands at RM5.7bil.

• The healthcare segment chalked up 1QFY19 revenue of RM126.8mil (+24.4% YoY) and PBT of RM15.4mil (+43.4% YoY), contributed by higher occupancy from increased number of new beds and higher outpatient treatments.

• We reduced our FY19–21 earnings forecasts by 1.9%, 1.7% and 1.5% respectively following our recent earnings downgrade on Sunway Construction. Nevertheless, we believe the outlook for Sunway remains positive premised on its unbilled sales of RM2.2bil, strong income contribution from property investment and a robust outstanding order book of RM5.7bil. Maintain BUY.

Source: AmInvest Research - 23 May 2019