Investment Highlights

• We make no changes to our FY17-19F earnings forecasts, and maintain our BUY call on Sunway with an unchanged SOP-based fair value of RM4.65 per share.

• Sunway’s 1HFY17 core net profit grew 6.0% YoY to RM271.8mil. This was in line with expectations, accounting for 50% of our full year forecast and 48% of consensus. A first interim dividend of 7.0 sen per share was declared.

• Sunway’s 1HFY17 revenue grew 4.8% YoY to RM2.33bil, while pre-tax profit increased 11.8% YoY to RM424.6mil. The higher pre-tax profit was contributed by most business segments, except property development and quarry segments.

• Property development division’s revenue dropped 24.5% YoY to RM414.4m while pre-tax profit dropped 22.7% YoY to RM100.3mil 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 Q216. Sunway registered new property sales of RM376mil in 1HFY17, while unbilled sales stood at RM1.2bil, made up mainly by Sunway Velocity. We expect the sales and revenue to pick up in the upcoming quarters, with Sunway set to launch RM2b GDV of new projects in 2017.

• Property investment segment’s revenue grew 19.7% YoY to RM394.3mil while pre-tax profit grew 54.5% YoY to RM115.6mil, mainly due to Sunway Velocity Mall which opened in Dec 2016, and a higher fair value gain of Sunway REIT by RM33.1mil.

• Construction segment’s revenue grew 11.9% YoY to RM627.7mil while pre-tax profit grew 9.7% YoY to RM79.2mil. Construction order book stood at RM4.3bil as at end-1HFY17, which should keep it occupied for the next 24 months. It replenished its order book by RM991mil in 1HFY17, mainly from Sunway Serene condo project (RM449m) and MRT Station Works S201 (RM212m).

• 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 is 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 land bank locally, as well as its geographical diversification.

Source: AmInvest Research - 30 Aug 2017