Investment Highlights

• We maintain BUY on Sunway with an unchanged SOP derived fair value of RM2.20/share which also reflects a 3% premium for our 4-star ESG rating (Exhibits 2 and 3).

• Our FY22F–FY23F earnings have been raised by 5% on higher progress billing assumptions following the raising of Sunway’s FY21F property sales target by 38% to RM2.2bil from RM1.6bil previously.

• The group raised its FY21F sales target by a whopping 66% YoY from only RM1.3bil in FY20 because 1HFY21 property sales of RM1.6bil have already reached the earlier target. This is underpinned by encouraging sales in excess of RM1bil in Singapore in 1H2021, particularly the high-rise condominiums, Ki Residences in Clementi and Parc Central in Tampines, which achieved take-up rates of 55% and 80% respectively.

• On the local front, the 2 towers of Sunway Belfield, located in KL city centre, were also well received with a take-up rate of 75% although the development was just launched in January and an earlier-than-scheduled second tower launch. The projects generated sales worth RM164mil in 1QFY21, attaining 59% of local sales.

• Sunway’s 1HFY21 total property sales accelerated by 137% YoY (vs. RM675mil in 1HFY20), and contributed 73% of the revised FY21F sales target. However, sales momentum slowed down QoQ, whereby Sunway posted only RM0.4bil in 2QFY21, showing a sharp decline of 62% from its 1QFY21 sales of RM1.2bil (Exhibit 1).

• Recall that the bulk of the group’s 1QFY21 property sales were mainly from projects in Singapore, making up 75% of total group sales, whereby 24% came from local and 1% from China. In 1QFY21, the property segment contributed 10% and 20% to the group’s revenue and pre-tax profit.

• We are encouraged by the strong buying support for Sunway’s property launches against the backdrop of an uncertain sector outlook given that longer movement restrictions could lead to closures of sales galleries and stop-work order on construction sites in EMCO districts which could result in lower-than-expected 2H sales.

• We believe the long-term outlook for Sunway remains positive premised on its: (i) strong unbilled sales of RM3.3bil as at 31 March 2021 (5.5x FY21F property development revenue); (ii) a robust outstanding order book of RM5bil (2.5x FY21F construction revenue); and (iii) its expansion plan in the healthcare business (which could increase capacity by 82% in FY23F).

Source: AmInvest Research - 8 Jul 2021