Investment Highlights

• We maintain BUY on Sunway with an unchanged SOPbased fair value (FV) of RM2.40/share, which implies an FY24F PE of 17x, 1 standard deviation above its 3-year median of 12x. Our FV also reflects a 3% premium for our 4-star ESG rating (Exhibits 5 & 6).

• We made no changes to our earnings forecasts as Sunway’s 1HFY23 core net profit (CNP) of RM295mil came in within our expectation, accounting for 48% of our FY23F earnings and 42% of street’s.

• In 1HFY23, Sunway’s property development revenue rose by 37% YoY while PBT grew 47% YoY. This was driven by higher property sales and stronger progress billings from new and ongoing local projects. Its current strong unbilled sales of RM4.9bil are expected to be recognised progressively in FY23F-25F.

• Sunway’s 1HFY23 new sales surged 61% YoY to RM1.5bil, attaining 65% of its FY23F sales target of RM2.3bil (Exhibit 3). The major sales contributors are its projects from Singapore (51%), and Velocity TWO (11%) and Sunway Flora Residences (10%) from Malaysia.

• Sunway’s 1HFY23 launches of RM3bil (9.9x YoY) made up 88% of its FY23F targeted launch of RM3.5bil. The major projects are The Continuum (RM2bil) and Terra Hills (RM700mil) in Singapore (Exhibit 4). In 2HFY23, we expect Sunway to launch the remaining RM500mil worth of projects in Malaysia and China.

• 1HFY23 property investment’s revenue earnings improved 51% YoY as a result of increased visitors to its theme parks and improved hotel occupancy rates. However, PBT grew by only 3% due to elevated utility charges and increased manpower costs.

• 1HFY23 PBT of the construction segment dropped by 9% YoY despite a 7% YoY increase in revenue. This was mainly attributed to higher cost savings realised from completed projects in the prior year (1HFY22).

• Healthcare’s 1HFY23 share of net profit grew 5% YoY to RM67mil as a result of the improvement in hospital activities, particularly at Sunway Medical Centre (SMC), Sunway City and SMC Velocity, which mitigated the share of start-up operational losses from SMC Penang and Sunway Sanctuary as well as higher utility costs.

• On a QoQ comparison, all segments except property investment posted stronger PBT in 2QFY23. In 2QFY23, property development PBT surged 2.1x QoQ due to higher property sales (+97% QoQ) and improving progress billings from new and on-going local development projects. Meanwhile, the construction segment’s 2QFY23 PBT was 13% higher QoQ due to stronger progress billings from local construction projects.

• However, 2QFY23 PBT of its property investments halved QoQ due to lower contributions from the leisure segment as a result of lower visitorship during the fasting month in April coupled with lesser number of school and public holidays in 2QFY23.

• Nevertheless, we believe the long-term outlook for Sunway remains bright premised on its: (i) strong unbilled sales of RM4.9bil (3.6x FY23F property development revenue); (ii) robust outstanding order book of RM5.8bil (4x FY23F construction revenue); and (iii) expansion plans for healthcare business (which could increase FY23F capacity by 82%).

• The stock currently trades at a compelling FY24F PE of 13x vs. its 5-year peak of over 20x.

Source: AmInvest Research - 25 Aug 2023