Investment Highlights

• We maintain BUY on Sunway with a higher fair value of RM2.03/share (vs. RM1.93/share previously) based on SOP valuations, which also reflects a 3% premium for our 4-star ESG rating (Exhibits 5 & 6). We raise our FY21–22F net profit by 18%– 16% to RM646mil and RM731mil respectively to reflect the recovery in all segments while introducing FY23F net earnings with a growth of 8% to RM788mil.

• Sunway’s FY20 core net profit (CNP) of RM338.4mil (excluding impairment for inventories, PPE and other one-off items of RM21.2mil) came in 14% above our forecast but 16% below consensus estimates. The variance against our forecast stems from better-than-expected contributions from both the property development and construction divisions. Its FY20 CNP plunged 51% YoY mainly dragged by property investment, the only lossmaking division, as businesses halted during the movement control order (MCO). The group’s FY20 dividend of 1.50 sen/share (-84% YoY), translates to a payout ratio of 22%.

• For FY20, the property development division posted revenue and PBT of RM495mil (-9% YoY) and RM297mil (+21% YoY) respectively. The higher PBT was due to profit recognition from Singapore and China development projects and proceeds on land disposal amounting to RM7.7mil. Sunway reported FY20 new sales of RM1.3bil (vs. RM1.6bil YoY) while unbilled sales stood at RM2.4bil as of 31 Dec 2020 (vs. RM2.7bil YoY). For FY21, the group has set a sales target of RM1.6bil and lined up launches with a combined GDV of RM2.8bil (vs. RM1.9bil YoY).

• The property investment division registered revenue of RM334mil (-58% YoY) and LBT of RM31mil (vs. PBT of RM336mil YoY) as there were lower visitor arrivals and shorter operational days, particularly in leisure and hospitality and hence badly hit the overall segment’s performance.

• The construction division recorded revenue and PBT of RM990mil (-22% YoY) and RM105mil (-35% %YoY). The drag came from its 2QFY20 as construction activities were halted during the MCO while fixed overheads continued to incur.

• The healthcare division reported revenue and PBT of RM620mil (+6% YoY) and RM17mil (-72% YoY) on the sharp declines of admissions and outpatient treatments during 1H20. However, improved 2H20 patient rates contributed higher revenue.

• We believe the outlook for Sunway remains positive premised on its: (i) stronger unbilled sales of RM2.4bil; (ii) a robust outstanding order book of RM5.1bil; and (iii) expansion plan in its healthcare business. The stock offers a 19% upside from its last traded price.

Source: AmInvest Research - 1 Apr 2021