Investment Highlights

• We maintain BUY on Sunway with a higher SOP-based fair value (FV) of RM3.16/share (from RM2.40/share previously), which implies FY25F PE of 21x, 1 standard deviation above its 5-year median of 15x. Our FV also reflects a 3% premium for our 4-star ESG rating .

• The higher FV is mainly driven by (i) our recently raised fair value for Sunway Construction (SunCon) to RM2.66/share from RM2.18/share; and (ii) higher valuation for Sunway Healthcare, drawing reference from the disposal price of Ramsay Sime Darby Health Care.

• Pending the company’s 4QFY23 results next week, we maintain our earnings forecast.

• Sunway’s 54.6%-owned SunCon is poised to benefit from a resurgence in contract awards for its construction division, alongside potential contract wins stemming from the finalisation of the Vietnam coal-fired power plant, the construction of warehouses/data centers, and internal construction projects from Sunway group.

• Furthermore, we have revised upwards the valuation of Sunway’s 84%-owned Sunway Healthcare, taking into consideration the disposal price of Ramsay Sime Darby Health Care as a reference point. To recap, in November 2023, Sime Darby and its Australian partner, Ramsay Health Care disposed Ramsay Sime Darby Health Care to Columbia Asia Healthcare at an EV/EBITDA of 20.1x. This transaction serves as a benchmark for the valuation of Sunway Healthcare.

• Consequently, we project the valuation of Sunway Healthcare to fall within the range of RM13bil-RM14bil for its initial public offering (IPO) by 2027. This assumes a 10%-12% annual growth in EBITDA and EV/EBITDA multiple of 20.1x.

• Additionally, we hold a positive outlook on the recent tender won by Sunway's wholly-owned Sunway Developments (SDPL) in collaboration with Hoi Hup Realty on 14 February 2024, citing its strategic location and the increasing demand for Executive Condominiums (EC) in Singapore.

• As at 15 February 2024, Sunway’s market capitalisation ranking has ascended to become the 28th largest in Bursa Malaysia. Given the positive developments within the group, particularly regarding the IPO of Sunway Healthcare, we anticipate that Sunway's positive share price trajectory is sustainable, underpinned by a potential inclusion in the KLCI index.

• The stock currently trades at a compelling FY25F PE of 20x vs. its 5-year peak of 27x.

Source: AmInvest Research - 16 Feb 2024