Investment Highlights

• We maintain BUY on Sunway with an unchanged SOPderived fair value of RM2.20/share which also reflects a 3% premium for our 4-star ESG rating (Exhibits 4 & 5).

• Sunway’s 1HFY21 core net profit (excluding impairment and receivables write-off amounting to RM7mil) of RM136mil came in within expectations at 36% of our FY21F earnings and 38% of consensus vs. 19%–44% of 1HFY19– 20 net profit. Thus, we make no changes to our forecasts. Sunway declared a first interim DPS of 1 sen, translating to a payout ratio of 36% and in line with our forecast.

• Property development revenue rose 18% YoY to RM245mil in 1HFY21, thanks to higher sales and progress billings from local projects. However, its PBT fell 33% YoY to RM44mil as a higher share of profit was recognised in 1HFY20 from the completion and handover of a local development. Cumulatively, Sunway’s new sales surged 2.4x YoY to RM1.6bil (vs. RM675mil in 1HFY20), already making up 75% of its FY21F sales target of RM2.2bil.

• The strong sales were mainly boosted by projects in Singapore (61% of 1HFY21 total group sales) while the remaining came from local (38%), particularly Sunway Belfield (which contributed 54% of local sales) and China (1%). Meanwhile, the group’s unbilled sales grew 13% YoY to RM3.6bil as at 30 June 2021 (Exhibit 3).

• Revenue from the property investment division fell 36% YoY to RM121mil due to the movement control orders, which led to a larger LBT of RM33mil (vs. LBT of RM4mil in 1HFY20).

• Higher progress billings from local construction projects drove up 1HFY21 construction revenue by 74% YoY to RM539mil and a pretax profit by 25% YoY RM36mil.

• For the healthcare division, strong recovery in hospital activities with higher number of admissions and outpatient treatments boosted the segment’s revenue by 35% YoY to RM371mil and turned around an LBT of RM20mil in 1HFY20 to a PBT of RM42mil.

• All in, we deem the results commendable given that most of the business segments’ 1HFY21 revenues have improved significantly except for property investment.

• On a QoQ comparison, all segments posted stronger 2QFY21 PBT with the exception of the construction and manufacturing divisions due to lower productivity during increased lockdown restrictions.

• We believe the long-term outlook for Sunway remains positive premised on its: (i) strong unbilled sales of RM3.6bil (6x FY21F property development revenue) and (ii) a robust outstanding order book of RM4.8bil (2.8x FY21F construction revenue); and (iii) expansion plan in its healthcare business (which could increase capacity by 82% in FY23F).

Source: AmInvest Research - 25 Aug 2021