Investment Highlights

• We maintain our BUY call on Sunway Bhd (Sunway) with a higher FV of RM2.07 per share (from RM2.03) based on SOP valuations (Exhibit 2). We increase our FV to reflect the recent FV upgrade on Sunway REIT. We made no changes to our FY19–21 net profit forecasts.

• Sunway reported 9MFY19 revenue and net earnings of RM3,427.3mil (-15.2% YoY) and RM566.3mil (+21.4% YoY) respectively. Stripping off the net gain from the disposal of Sunway University assets (RM37.7mil), revaluation of Sunway REIT properties (RM43.6mil), distribution to holders of perpetual sukuk (RM38mil) and other gains, core PATMI of RM438.4mil (-6.1%) came in within our expectation but below consensus at 74% and 70% of ours and consensus full-year estimates. Nonetheless, 9MFY19 EBITDA was up by 11.2% at RM633mil.

• The property development division posted its 9MFY19 revenue and PBT of RM327.7mil (-21.2% YoY) and RM129.1mil (-5.7%) respectively. The lower revenue and PBT were mainly due to lower sales and progress billings from local development projects. Sunway reported new sales of RM1.1bil (YoY: RM1.6bil) while unbilled sales were higher at RM2.8bil (YoY: RM2.1bil; QoQ: RM2.7bil) and these will provide good earnings visibility in the short to mid-term.

• The property investment segment registered a 9MFY19 revenue of RM582.5mil (-1.6% YoY) and PBT of RM246.7mil (+15.1% YoY). The lower revenue was attributed to lower contribution from rental income after the disposal of Sunway University assets to Sunway REIT. Nonetheless, PBT was higher, boosted by a disposal gain on Sunway University assets.

• The healthcare segment chalked up a 9MFY19 revenue of RM422.0mil (+29.1% YoY) and PBT of RM50.5mil (+34.5% YoY), contributed by higher occupancy from increased number of new beds and higher outpatient treatments.

• The construction segment’s 9MFY19 revenue and PBT were of RM955.2mil (-29.7% YoY) and RM124.2mil (-6.3% YoY) respectively. The weaker revenue was mainly due to lower progress billings from local construction projects and higher intra-group eliminations. Meanwhile, PBT was boosted by lower intra-group profit eliminations. YTD, Sunway Construction has secured new jobs worth a total of RM1.7bil while its outstanding construction order book stands at RM5.6bil.

• We are keeping our FY19–21 earnings forecasts. Our fair value is raised to RM2.07 from RM2.03. We believe the outlook for Sunway remains positive premised on its: (i) improving unbilled sales of RM2.7bil; (ii) stable income contribution from property investment; (iii) a robust outstanding order book of RM5.8bil; and (iv) strong growth potential in healthcare business. Maintain BUY.

Source: AmInvest Research - 22 Nov 2019