Investment Highlights

• We maintain BUY on Sunway with a raised SOP-based fair value (FV) of RM4.48/share (from RM4.22/share previously) du to our higher earnings forecasts. Our FV also reflects a 3 premium for our 4-star ESG rating.
   
• Our FV implies FY25F PE of 27x, 1.5 standard deviation abov its 5-year median of 15x. We believe the premium to b reasonable considering the rapid growth of Sunwa Healthcare, recovery in construction margins with data centr themed catalysts and exposure to the dynamic Johor proper market.
   
• We raise FY24F-FY26F earnings by 11%-14% on higher marg assumptions as Sunway’s 1HFY24 core net profit (CNP) RM405mil (excluding exceptional items largely from fair valu gains arising from the redemption of 41%-owned Sunwa REIT’s perpetual notes and acquisition of 6 Gia hypermarkets) came in above expectations, making up 53% our earlier full-year forecast and 51% of street’s.

• In 1HFY24, Sunway’s property development revenue rose b 8% YoY while PBT surged at a faster pace of 51% YoY due to 4.7%-point improvement in pretax margin to 16.5%. Its unbille sales rose 7% QoQ to RM4.5bil from RM4.2bil in 1QFY24 a 2QFY24 sales soared 61% QoQ to RM802mil.

• Sunway’s 1HFY24 new sales slid 13% YoY to RM1.3bil, yet st achieved half of its FY24F sales target of RM2.6bil (+6.6% YoY The major sales contributors were Sunway Velocity 3 (Tower & B), Sunway Aviana (Phase 3) and Sunway Gardens (Phas 3). In 2HFY24, Sunway plans to launch RM1.2bil developments, a 46% increase from RM811mil in 1HFY24 attain the group’s FY24F target of RM2.1bil.

• QoQ, 2QFY24 property investment revenue was flat while PBT rose 24% due to the lumpy fair value gains from Sunway REIT

• 2QFY24 revenue of the construction segment climbed by slight 2% QoQ but PBT increased at a faster 24% given minim legacy projects while new jobs generate higher margins. Ne orders secured YTD has reached RM3.5bil, which led to th group revising FY24F construction order book replenishme target to RM4bil-RM5bil from RM2.5bil-RM3bil earlier.

• Healthcare’s 2QFY24 share of net profit grew 34% QoQ RM49mil as 1QFY24 was affected by the festive season an school holidays. This segment is expected to register robu growth with the expansion of Sunway Medical Centre (SMC Damansara and SMC Ipoh coupled with the gradual expansio of total bed capacity to 2,300 by 2025 from 1,158 currently.

• Sunway is currently trading at an attractive FY25F PE of 24 vs. its 5-year peak of 29x.

Source: AmInvest Research - 29 Aug 2024