Investment Highlights

• We maintain BUY on Sunway with an unchanged fair value (FV) of RM2.29/share based on SOP valuation. Our FV also reflects a 3% premium for our 4-star ESG rating (Exhibits 4 & 5).

• Sunway’s 9MFY22 core net profit (CNP) of RM414mil came in within our expectation, making up 72% of our FY22F earnings while accounting for 84% of consensus estimate. Hence, we make no changes to our forecast.

• Its 9MFY22 results were commendable with the revenue of all business segments improved significantly.

• In 9MY22, its property development revenue rose by 64% YoY. This was driven by higher sales and progress billings from completed progress works on ongoing local projects and recognition of revenue from 2 joint-venture companies which were converted into subsidiaries in 1QFY22. However, the segment’s PBT fell 4% YoY due to provisions for higher construction costs, coupled with higher upfront costs incurred on future launches.

• Sunway new sales in 9MFY22 dropped 34% YoY to RM1.4bil, attaining 65% of its FY22F sales target of RM2.2bil. The lower YoY property sales were attributed to slower 9MFY22 launches of RM542mil, which were only 24% of its FY22 targeted launch of RM2.3bil.

• We understand from management that the planned launches in both Singapore and China will be deferred to FY23 in view of the delays in the completion of land acquisition in Singapore and weaker property market sentiments in China. Hence, we are cautiously optimistic on the prospect of its new sales in view of the scale-back of new launches.

• 9MFY22 property investment segment’s earnings swung to the black, driven by higher revenue growth of 2.6x YoY as a result of increased visitorship to its theme parks and improved hotel occupancy rates following the reopening of the economy and less stringent SOPs.

• Higher progress billings from local construction projects drove up 9MFY22 construction revenue by 35% YoY and its pretax profit by 2.2x YoY.

• 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 property investment segment’s 9MFY22 share of net profit by 48% YoY to RM105mil.

• On a QoQ comparison, property development and property investment posted stronger PBT in 3QFY22, while the PBT for construction and other segment declined.

• In 3QFY22, property development segment registered a 39% QoQ growth in PBT despite a 3% QoQ drop in revenue due to higher progressive profit recognition from one of its private condominium projects in Singapore. Meanwhile, both the revenue and PBT of its property investment segment were boosted by improved performance of the leisure and hospitality segments and continued strong performance of its 41%-owned associate company, Sunway REIT.

• Meanwhile, construction segment’s 3QFY22 PBT was 20% lower QoQ which was mainly due to lower progress billings for some local projects. The PBT of other segment fell 27% QoQ due to the non-repeat of a one-off gain on disposal (RM26.6mil) of one of its new start-up investments in 2QFY22.

• We believe the long-term outlook for Sunway remains bright premised on its:
  (i) strong unbilled sales of RM4.2bil (4.2x FY22F property development revenue);
  (ii) a robust outstanding order book of RM4bil (2.2x FY22F construction revenue); and
  (iii) expansion plan in its healthcare business (which could increase the capacity by 82% in FY23F).

Source: AmInvest Research - 29 Nov 2022