Investment Highlights

• We maintain BUY on Sunway with an unchanged fair value of RM2.27/share based on SOP valuations, which also reflects a 3% premium for our 4-star ESG rating (Exhibits 4 & 5).

• Sunway’s 1QFY22 core net profit (CNP) of RM138mil came in within expectations, making up 27% of our FY22F earnings and 29% of consensus estimate. Thus, we make no changes to our forecast.

• In 1QFY22, the group’s property development segment’s revenue rose 63% YoY. This was driven by higher sales and progress billings from the completion of progress works on ongoing local projects and full revenue recognition from 2 joint-venture companies which were converted into subsidiaries in the current quarter. However, the segment’s PBT inched up by only 13% YoY due to provisions of higher construction costs, coupled with higher upfront costs incurred on future launches.

• Year to date, Sunway has secured new sales of RM447mil (-61% YoY), attaining 20% of its FY22F sales target of RM2.2bil. New sales were contributed largely by local projects (65%), particularly Sunway Belfield (19%) and Serene (18%) while the remaining came from projects in Singapore (34%) and China (1%) (Exhibit 3).

• Meanwhile, the group’s unbilled sales expanded 27% YoY to RM4.2bil, which represented a cover ratio of 4x of FY22F property development revenue. Projects in Singapore are the largest contributor with unbilled sales of RM2.2bil (53% of group).

• 1QFY22 property investment segment returned to the black with PBT driven by higher revenue growth of 2x YoY as a result of higher visitorship to its theme parks and increased hotel occupancy rates following the reopening of the economy and less stringent SOPs.

• Higher progress billings from local construction projects drove up 1QFY22 construction revenue by 15% YoY and its pretax profit by 73% YoY.

• Following the partial divestment of its healthcare arm, Sunway Healthcare Group (SHG), SHG is now reclassified as a joint venture (from a subsidiary previously). With effect from 1 January 2022, the share of the profit or loss in SHG will be recognised under the equity method of accounting. The strong recovery in hospital activities with a higher number of patients treated at both Sunway Medical Centre and Sunway Medical Centre Velocity boosted the segment’s 1QFY22 share of net profit by 2x YoY to RM28mil.

• All in, the results were commendable given that all of business segments’ 1QFY22 revenues have improved significantly.

• On a QoQ comparison, all segments posted weaker 1QFY22 PBT, except for property investment which mainly benefited from the recognition of fair value gains on revaluation on investment properties (RM41mil), offset by share of fair value loss from the revaluation of Sunway REIT properties (RM23mil).

• We believe the long-term outlook for Sunway remains positive premised on its:
  (i) strong unbilled sales of RM4.2bil (4x FY22F property development revenue);
  (ii) a robust outstanding order book of RM4.4bil (2.4x FY22F construction revenue); and
  (iii) expansion plan in its healthcare business (which could increase capacity by 82% in FY23F).

Source: AmInvest Research - 27 May 2022