Investment Highlights

• We maintain BUY recommendation 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 2 & 3).

• Pending the company’s FY21F results next month, we maintain our earnings forecasts despite the company exceeding its 2021 full-year sales target of RM2.2bil by 16% to an all-time record high of RM2.6bil (+92% YoY).

• We believe our FY21F net profit is intact as 4QFY21 would need to contribute 41% to the full-year earnings. As a comparison, the group usually reports its strongest earnings in 4Q, which accounted for 37%–48% over the last 2 years.

• Meanwhile, our recent virtual meeting with the group’s CFO Chong Chang Choong provided the following highlights:

• We understand that the majority of the strong FY21F sales was driven by projects in Singapore, of which earnings contribution will only be recognised progressively from FY22F onwards until completion and handover due to MFRS 15.
  Sunway plans to launch projects worth RM2.3bil (-28% YoY) with a FY22F sales target of RM2.2bil (-16% YoY). The focus of the lower launch and sales targets would be local developments (59%), followed by Singapore (29%) and China (12%).
  On the local front, 59% of the residential products (high-rise) is set to be launched in Selangor and Kuala Lumpur (KL) areas, with 22% (landed properties) in Johor, 14% (townhouses) in Penang and 5% (townhouses) in Ipoh (Exhibit 1).
  The group holds a neutral view on the withdrawal of the Home Ownership Campaign (HOC) and higher raw material costs on upcoming launches as Sunway targets the mid-upper buyer segment with prime locations as the selling point. As raw material costs account for less than 2% points to the group’s pretax margin, the impact is not substantive at this juncture.
  Sunway continues to target strategic land locations in KL while the group is comfortable with the landbank in hand in Singapore. Recall that Sunway successfully acquired 2 pieces of lands in Cheras, KL and another 2 in Singapore last year.

• The adverse impact of the lockdowns on leisure, hospitality and retail shopping malls segments was partly cushioned by the resilient performance in office space as most tenants are multinationals who were less affected.
  However, we expect the segment’s losses to decline in 4QFY21 as the visitor pick-up in theme parks was significant despite shorter operating hours following the easing of movement restrictions in October 2021.
  This is further lifted by improved booking rates in the hotel segment and increased footfall in retail shopping malls which are supported by local tourists.
• Sunway Medical Centre Velocity which started operation 2 years ago has begun to turn around to operating profits from November 2021 onwards. The encouraging performance in this division is expected to grow further, underpinned by the potential synergy between Sunway Pharmacy and Mutlicare Health Pharmacy Sdn Bhd which has nearly 90 outlets throughout Malaysia.
  The expansion plan of Sunway Medical Centre Towers D, E and F together with Sunway Medical Centre Seberang Jaya, Penang are expected to be completed in 2Q2022 while the wards will be opened in phases from 2H2022 with an estimated capacity of 798 beds.
  Recall that Sunway Healthcare segment reported stronger YoY and QoQ (over 100%) earnings in its 9MFY21 and 3QFY21 despite foreign patients being prohibited from seeking medical treatments in Malaysia due to travel restrictions.
• We see that Sunway is well positioned to capitalise on the economic recovery coupled with the improvement in every segment across the group. Hence, we are optimistic on Sunway’s long-term outlook premised on its: (i) 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 - 19 Jan 2022