Investment Highlights

• We maintain our BUY recommendation on Sunway with a lower SOP-derived fair value of RM1.98/share (vs. RM2.04/share previously), which also reflects a 3% premium for our 4-star ESG rating (Exhibits 5 & 6). We cut our FY21–FY23F net profit forecast by 14%, 7%, 5% respectively to reflect slower progress recognition timing amid the prolonged pandemic.

• Sunway’s 1QFY21 core net profit of RM57.4mil came in below expectation, accounting for only 9% of our earlier FY21F earnings and 11% of consensus. The variance against our earlier forecast stemmed from weaker-thanexpected earnings from all segments with the exception of the healthcare division.

• Property development revenue decreased by 30% YoY to RM97.2mil due to lower progress billings, which drove down the division’s PBT by 47% YoY to RM20.7mil. However, Sunway’s new sales doubled YoY to RM1.2bil (vs. RM583.2mil in 1QFY20), making up 73% of its unchanged FY21F sales target of RM1.6bil.

• The strong sales were mainly boosted by projects in Singapore (75% of total group sales), whereby the remaining came from local (24%) projects and China (1%). Meanwhile, the group’s unbilled sales were relatively flat YoY at RM3.3bil as at 31 March 2021 (Exhibit 3).

• Revenue from the property investment division fell 56% YoY to RM58.7mil due to lower rental income from Covid- 19 affected retail and hotel segments, which led to an LBT of RM16.9mil (vs. PBT of RM32mil in 1QFY20).

• Higher progress billings from local construction projects bumped up construction revenue by 47% YoY to RM321.4mil and a pretax profit by 23% YoY RM27.7mil.

• For the healthcare division, strong recovery in hospital activities after MCO 2.0 was lifted in early March boosted the segment’s revenue by 14% YoY to RM170.6mil and turned around RM4.5mil LBT in 1QFY20 to a RM14mil PBT.

• QoQ, all segments posted weaker results on lower progress recognition and sales except for property investment’s sharp 80% drop in losses due to revaluation loss and impairment of properties in 4QFY20 together with higher numbers of visitors to the theme parks despite MCO 2.0. This was partially offset by the continuing low occupancy rates for the hospitality business.

• Although starting off the year with a weak 1QFY21 earnings delivery, we believe the long-term outlook for Sunway remains positive premised on its :(i) strong unbilled sales of RM3.3bil (5.5x FY21F property development revenue) and (ii) a robust outstanding order book of RM5bil (2.5x FY21F construction revenue); and (iii) expansion plan in its healthcare business (which could increase capacity by 82% in FY23F).

Source: AmInvest Research - 27 May 2021