- We maintain our Hold call on Sunway with a higher fair value of RM3.50/share (vs. RM3.15/share previously), based on a 15% discount to our SOP value of RM4.13/share (vs. RM3.95/share previously).

- This follows Sunway’s 1QFY13 core net profit of RM90.3mil (+41% YoY; -2% QoQ) which met expectations, accounting for 23% and 24% of our and consensus forecasts, respectively. Revenue of RM1.02bil (+25% YoY; -12.8% QoQ) was slightly ahead of our forecast (~26%).

- While operating profit was below our forecasts, lower net interest charge and effective tax rate compared to our forecasts contributed to the estimated bottom line.

- EBIT margin improved by 1ppt YoY to 8.4% (our assumption at 12%), but was down by the same quantum QoQ. Its 1Q result is traditionally weaker than the last quarter of the year due to seasonality. We maintain our operating margin assumptions for now.

- Contributions were broad-based, with the main divisions – property development, construction and property investment plus others – accounting for almost equal proportions of the group’s operating profit.

- Property sales came in at RM238mil (effective RM203mil; +27% YoY, -47% QoQ). Sunway says the higher revenue YoY was mainly due to good progress of projects in Sunway South Quay, Sunway Damansara, Sunway Velocity and Sunway Montana, while EBIT (+41% YoY; vs. RM6.5mil loss in 4Q12) was further boosted by strong contributions from Singapore projects. As at 31 March, 2013, unbilled sales amounted to RM2.3bil.

- For the construction division, the outstanding order book totalled RM4.4bil as at 31 March 2013, out of a total of RM6.13bil worth of jobs. Replenishment for the year so far amounts to a healthy RM1.5bil.

- Sunway says the higher construction revenue was due to higher progress billings including that for the Pinewood, MRT and LRT projects, while operating profit growth (+271% YoY; vs. RM6.5mil loss in 4Q12) was aided by strong sales of precast products as the Senai plant was fully operational in 1Q13.

- Its recent share price performance signals a potentially good response to its proposed 1-for-3 renounceable rights issue of up to 568.7mil shares for RM1.70 each (plus a 10% ESOS – adjusted recently from 15% – of up to 155.1mil shares).

Source: AmeSecurities