Investment Highlights

• We make no changes to our FY17-19F earnings forecasts, and maintain our BUY call on Sunway with a higher SOPbased fair value of RM3.81 per share. This was derived after applying a 20% discount to its property development division’s RNAV, and pegging its construction division at 14x CY18F P/E, as we roll forward our valuation to FY18F, in line with our target P/E of 13-15x for mid-sized construction stocks.

• Sunway’s 1QFY17 net profit grew 5.7% YoY to RM107.9mil. This accounted for 20% of our full-year forecast and 19% of consensus. We deem this to be broadly in line as we expect stronger performance ahead for the group for the rest of the year. No dividend was declared, as expected

• Sunway’s 1QFY17 revenue rose 2.1% YoY to RM1.09bil, but pre-tax profit dropped 13.0% YoY to RM153.1mil. The lower pre-tax profit was mainly due to weaker profit at its property development division.

• Property development division’s revenue slipped 39% YoY to RM143.3mil while EBIT shrank 71% YoY to RM20.5mil due to lower sales and progress billings from local development projects, and no sales recorded from its Avant Parc project in Singapore as the project was fully sold in 2Q16. Sunway registered new property sales of RM142mil in 1QFY17, while unbilled sales stood at RM1.4bil, made up mainly by Sunway Velocity. We expect the sales and revenue to pick up in the upcoming quarters, with Sunway set to launch RM2bil GDV of new projects in 2017.

• Property investment segment’s revenue expanded 10% YoY to RM186.9mil while EBIT strengthened 16% YoY to RM74.2mil, mainly due to Sunway Velocity Mall which opened in Dec 2016.

• Construction segment’s revenue edged up 1.7% YoY to RM316.8mil while EBIT shed 2.5% YoY to RM34.7mil. Construction order book stood at RM4.6bil as at end- 1QFY17, which should keep it occupied for the next 24 months. It replenished its order book by RM894mil in 1QFY17, mainly from Sunway Serene condo project (RM449mil) and MRT Station Works S201 (RM212mil).

• We expect Sunway to sustain its earnings growth even with the challenging outlook for the domestic property sector due to its diversified earnings base. Only around 40% of the group’s earnings are contributed by property development, while the rest of its earnings base is made up of income from its investment properties and its stake in Sunway REIT, its construction segment, and other businesses, which include healthcare and trading. We also expect its property development division to benefit from its well-located landbank locally, as well as its geographical diversification.

Source: AmInvest Research - 30 May 2017