Investment Highlights

• We maintain our BUY call on Sunway Bhd (Sunway) with an unchanged FV of RM2.07 per share based on SOP valuations (Exhibit 3). We made no changes to our FY20–21 while introducing FY22 net earnings forecast at RM708.7mil.

• Sunway reported FY19 revenue and net earnings of RM4,780.4mil (-11.6% YoY) and RM766.6mil (+8.8% YoY) respectively. Stripping off the exceptional gains (RM73.9mil) and distribution to holders of perpetual sukuk (RM54.5mil), core PATMI of RM638.2mil (+16.5%) came in within expectations

• The property development division posted an FY19 revenue and PBT of RM545.96mil (-11.9% YoY) and RM246.3mil (+42.2%) respectively. The stronger PBT was mainly due to higher profit recognition and progress billings from local and China development projects. Sunway reported new sales of RM1.55bil (YoY: RM1.88bil) while unbilled sales were higher at RM2.7bil (YoY: RM2.1bil). These will provide good earnings visibility in the short to mid-term. Sunway’s property division is targeting new sales of RM2.0bil and lined up several launches for 2020 with a combined GDV of RM3.5bil (FY19: RM2.0bil).

• The property investment segment registered a FY19 revenue of RM803.5mil (-1.4% YoY) and PBT of RM336.3mil (+12.6% YoY). The lower revenue was attributed to a weaker 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 an FY19 revenue of RM584.8mil (+27.2% YoY) and PBT of RM61.8mil (+13.6% YoY), contributed by higher occupancy from increased number of new beds and higher outpatient treatments.

• The construction segment’s FY19 revenue and PBT came in at RM1,273.3mil (-31.1% YoY) and RM162.3mil (-10.3% YoY) respectively. The weaker performance was mainly due to lower recognition amid the subdued local and overseas market conditions and lower operating margins. YTD, Sunway Construction has secured new jobs worth RM1.8bil while its outstanding construction order book stands at RM5.2bil.

• The company declared a second interim dividend of 4.5 sen per share, bringing the total dividend payout to 7.5 sen for FY19, representing a payout ratio of 57%.

• Our fair value is unchanged at RM2.07. 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 - 26 Feb 2020