Investment Highlights

• We maintain BUY on Sunway with a higher fair value (FV) of RM2.39/share (from RM2.29/share previously) due to a rolled forward SOP-based valuation to FY24F. Our FV also reflects a 3% premium for our 4-star ESG rating (Exhibits 5 & 6).

• The FV implies an FY24F PE of 16x, +2 standard deviation above its 3-year median.

• We make no changes to our earnings forecast as Sunway’s FY22 core net profit (CNP) of RM600mil came in within our expectation but above consensus. It was 5% above our forecast but 10% below street’s.

• We also take the opportunity to introduce our FY25F earnings with a growth of 6% on expectation of a pick-up in launches.

• Sunway’s FY22 result was commendable as the revenue of all business segments improved significantly (Exhibit 2).

• In FY22, Sunway’s property development revenue rose by 86% YoY. This was driven by higher progress billings from completed progress works on ongoing local projects and the recognition of revenue from 3 joint-venture companies which became subsidiaries in FY22. However, the segment’s PBT rose marginally by 1% YoY due to the provisions for higher construction costs, coupled with higher upfront expenses incurred on future launches.

• Sunway’s FY22 new sales dropped 23% YoY to RM2bil, attaining 91% of its sales target of RM2.2bil (Exhibit 3). The lower YoY property sales were attributed to slower FY22 launches of RM1bil, which were only 43% of its earlier targeted launches of RM2.3bil.

• For FY23F, management is setting a higher sales target of RM2.3bil (+15% YoY vs actual FY22 sales) on the back of 9 new launches worth RM3.5bil in Singapore (77%), Malaysia (20%) and China (3%) (Exhibit 4).

• FY22 property investment’s earnings swung to the black, driven by higher revenue growth of 2.2x YoY as a result of increased visitors to its theme parks and improved hotel occupancy rates following the reopening of the economy and less stringent SOPs.

• Higher progress billings from local and overseas construction projects drove up FY22 construction revenue by 15% YoY and pretax profit by 25% YoY.

• The strong recovery in hospital activities with a higher number of patients treated at Sunway Medical Centre and Sunway Medical Centre Velocity boosted property investment’s FY22 share of net profit by 34% YoY to RM140mil.

• On a QoQ comparison, all segments except property investment posted stronger PBT in 4QFY22.

• In 4QFY22, property development registered a 97% QoQ growth in PBT due to higher progressive profit recognition from on-going local development projects and higher recognition from the completion and handover of a local development project.

• Meanwhile, construction segment’s 4QFY22 PBT was 65% higher QoQ despite a 5% decline in revenue, mainly due to recalibration of margin for projects nearing completion. The PBT of ‘other’ segment improved 68% QoQ due to stronger performances in healthcare segment and community pharmacy business.

• However, the PBT of its property investments were dragged by the recognition of fair value loss on its investment properties and lower contribution from its 41%-owned Sunway REIT.

• We believe the long-term outlook for Sunway remains bright premised on its:
  (i) strong unbilled sales of RM4.3bil (3.2x FY23F property development revenue);
  (ii) robust outstanding order book of RM5bil (3.6x FY23F construction revenue); and
  (iii) expansion plans for healthcare business (which could increase FY23F capacity by 82%).

Source: AmInvest Research - 24 Feb 2023