Investment Highlights

• We maintain BUY on Sunway with a raised SOP-based fair value (FV) of RM4.22/share (from RM3.30/share previously) to incorporate the market value of its investment properties and higher earnings assumption on Sunway Healthcare Group. Our FV also reflects a 3% premium for our 4-star ESG rating .

• Our FV implies FY25F PE of 29x, 1.5 standard deviation above its 5-year median of 15x. We believe the premium to be reasonable considering the rapid growth of Sunway Healthcare, robust construction arm, its exposure to the dynamic Johor property market as well as its potential inclusion to FBMKLCI constituent list.

• We made no changes to our forecast as Sunway’s 1QFY24 CNP of RM170mil came in within expectations, making up 22% of both our and street’s forecast.

• In 1QFY24, Sunway’s property development revenue rose by 16% YoY while PBT surged 68% YoY. This was driven by stronger progress billings from new and ongoing local projects. Its strong unbilled sales of RM4.2bil currently are expected to be recognised progressively in FY24F-FY26F.

• Sunway’s 1QFY24 new sales fell 1% YoY to RM498mil, made up 19% of its FY24F sales target of RM2.6bil . The major sales contributors are its projects from Singapore, as well as Sunway Belfield and Sunway Lenang Height from Malaysia.

• 1QFY24 property investment's revenue earnings improved 10% YoY while PBT rose 3%. These were mainly attributed to higher occupancy and average room rates at the group's hotels, increased revenue from property investment operations and contributions from leisure business.

• 1QFY24 revenue of the construction segment expanded by 14% YoY while PBT increased 7%. This was mainly attributed to higher progress billings from local and overseas construction projects.

• Healthcare’s 1QFY24 share of net profit grew 28% YoY to RM37mil, mainly due to stronger performance from the 3 operating hospitals in line with the increase in licensed bed capacity to 1,158 in 1QFY24 from 866 1QFY23, partially offset by higher staff costs from increased headcount.

• On a QoQ comparison, all segments posted a weaker PBT as follows:
  
  ➢ Property development PBT fell 44% QoQ due to higher profit recognition from the completion and handover of a local development project and more property development projects launches in the previous quarter.
  
  ➢ 1QFY24 PBT in property investment declined 49% QoQ from lower contribution from the leisure and hospitality businesses due to seasonal factors and fasting month which occurred in 1QFY24. Meanwhile, Sunway recorded net fair value gains from revaluation of investment properties and assets of RM68mil in 4QFY23.
  
  ➢ Meanwhile, the construction segment’s 1QFY24 PBT was 33% lower QoQ due to lower progress billings from both local and overseas construction projects.

• Sunway is currently trading at an attractive FY25F PE of 25x vs. its 5-year peak of 29x.

• Meanwhile, with a market capitalisation of RM21bil, placing the group at 23rd currently in terms of market cap, Sunway is highly likely to be included in the FBMKLCI during the upcoming review. This inclusion could trigger further rallies in the share price, especially from foreign investors who track the index, given the current low foreign shareholding of 5.3% vs. its 8-year high of 10.5%.

Source: AmInvest Research - 23 May 2024