Investment Highlights

• We resume coverage on Sunway Bhd (Sunway) with a BUY call and a fair value of RM1.93 per share (previously RM1.78) share based on SOP valuations (Exhibit 1). We cut our FY20 earnings forecast by 32% to reflect the lower earnings in 3QFY20 while retaining FY21–22 numbers. We reduce our discount to RNAV to 40% from 50% to reflect the lower risk premium as the availability of effective vaccines will improve the recovery prospects of the company.
• During a recent engagement with the company, management updated us on its latest development. Sunway lined up several launches for 4QFY20 with a combined GDV of RM1.66bil. In the central region, it has just launched the Sunway Velocity Two (Tower C) serviced apartments (GDV RM300mil) in November. Meanwhile, the Sunway Belfield serviced apartments (GDV RM360mil) is set for a December launch. At the same time, Sunway is planning to launch the Ki Residences condominium (GDV RM1bil) in Singapore.
• Sunway Velocity Two (Tower C), which was launched in November, has seen a take-up rate of 25%. Other projects, which were launched in the past 12 months, have also seen positive response such as the Sunway Avila Tower B (86%) and Canberra Link Singapore (86%).
• For the healthcare division, the expansion of Towers D, E & F of Sunway Medical Centre is expected to be completed in 1QFY22 with 400 additional beds. Meanwhile, the Sunway Medical Centre Seberang Jaya, Penang (200 beds) and Sunway Medical Centre Damansara, Selangor (200 beds) are scheduled for completion in 2022.
• Nevertheless, we are cautious of the high net gearing ratio of 57% as of 9MFY20. With the capex requirement for the expansion of its healthcare business and ongoing property development, we expect its net gearing to stay above 50% in the next 3 years. However, the proceeds from conversion of irredeemable convertible preference shares (ICPS) of about RM2bil will reduce Sunway’s gearing to about 30%.
• We believe the outlook for Sunway remains positive premised on: (i) its improved unbilled sales of RM3.1bil; (ii) better income contribution from property investment as the Covid-19 pandemic subsides; (iii) a robust outstanding order book of RM5.3bil; and (iv) strong growth potential in its healthcare business.

Source: AmInvest Research - 9 Dec 2020