Investment Highlights

• We maintain BUY on Sunway with an unchanged SOP-derived fair value of RM2.21/share which also reflects a 3% premium for our 4-star ESG rating (Exhibits 4 & 5).

• Our forecasts are unchanged as Sunway’s 9MFY21 core net profit (excluding impairment and receivables write-off amounting to RM15mil) of RM225mil was within our expectation but above consensus, accounting for 59% of our FY21F earnings and 77% of consensus vs. 52%–63% of 9MFY19–20 net profit.

• We believe Sunway’s 4QFY21 would be stronger on expectations of higher progress billings and work productivity from easing movement restrictions.

• On a QoQ comparison, all segments posted stronger 3QFY21 revenues with the exception of the property investment and construction divisions due to lower productivity during increased lockdown restrictions which began in July 2021.

• In 9MFY21, property development revenue surged 42% YoY to RM442mil, thanks to higher contribution from the completion and handover of Geo Residences in South Quay as well as stronger sales and progress billings from other ongoing local development projects.

• Cumulatively, Sunway’s new sales surged 2.3x YoY to RM2.2bil (vs. RM945mil in 9MFY20), already reaching its earlier FY21F sales target. The strong sales were mainly boosted by projects in Singapore (64% of 9MFY21 total group sales) with the remaining from local (34%) and China (2%). Sunway Belfield contributed 53% of local sales. Meanwhile, the group’s unbilled sales grew 22% YoY to RM3.8bil as at 30 September 2021 (Exhibit 3).

• 9MFY21 revenue from the property investment division fell 38% YoY to RM179mil due to the movement control orders, which led to a LBT of RM45mil (vs. PBT of RM59mil in 9MFY20).

• Construction’s 9MFY21 pretax profit slid by 13% to RM58mil from lower margins despite the company successfully recording a 29% increase in progress billings from local construction projects, which was much higher in 9MFY20.

• For the healthcare division, higher number of admissions and outpatient treatments boosted the segment’s revenue by 31% YoY to RM579mil and turned around an LBT of RM5mil in 9MFY20 to a PBT of RM71mil.

• All in, we deem the results as commendable given that most of the business segments’ 9MFY21 revenues have improved YoY significantly except for property investment.

• We believe the long-term outlook for Sunway remains positive premised on: (i) its strong unbilled sales of RM3.8bil (6x FY21F property development revenue); (ii) a robust outstanding order book of RM4.7bil (2.8x FY21F construction revenue); and (iii) the expansion plan in its healthcare business which could increase bed capacity by 82% in FY23F.

Source: AmInvest Research - 26 Nov 2021