- We downgrade Sunway to HOLD, with a tweaked fair value of RM3.08/share (vs. RM3.05/share previously), based on a 5% discount to an SOP value of RM3.23/share.

- We maintain our FY14F-FY15F earnings following the release of its FY13 results last week. Our downgrade is based on its current share price which offers less than a 15% upside to our FV.

- Sunway’s FY13 core net earnings of RM483mil (+37.6% YoY) beat our and consensus forecasts by 19% and 18%, respectively. The growth was on the back of an 18% growth in core revenue from RM3.85bil to RM4.53bil.

- Notwithstanding that, core EBIT(stripping out all impact of EIs) was in line with expectations, accounting for 96% and 97% of our and consensus estimates. Core PATMI margin improved to 10.2% in FY13F from 9.1%in FY12. Note too that the effective tax rate for FY13 was only 6% vs. 14% in FY12.

- It declared a second interim dividend of 5 sen/share, bringing the total for the year to 10 sen/share (vs. 6 sen/share in FY12) – translating to a payout ratio of 36% over core PATMI.

- For the full year, construction and property development contributed significantly to earnings, with operating profits growing by 29% and 22%, respectively, while core revenue of the two divisions grew by 27% and 28%, respectively.

- Notably though, construction posted an operating loss of RM11mil in 4QFY13. Construction EBIT plus share of associate and jointly-controlled entities amounted to RM20.2mil, impacted by a one-off provision of RM23mil for doubtful debts. For the full year, it stood at RM80mil, up by 30% from FY12’s RM61.5mil.

- For property development, sales reached RM1.8bil (effective: RM1.4bil), while unbilled sales totalled RM2.4bil (effective: RM1.9bil) as at 31 December 2013. The group is targeting to launch RM2.3bil (effective: RM1.7bil) worth of properties in FY14, with a targeted sales of RM1.8bil (effective: RM1.3bil).

- Key launches include RM300mil worth of offices (167 units) and service apartments (328 units) in Medini, Sunway Iskandar, sometime in 2QFY14, including 51 retail units for its property investment division. The sales gallery is expected to be ready by April.

- For construction, the group has set a target of securing RM2.5bil worth of jobs, including 70% of external projects. As at end-2013, construction order book replenishment totalled ~RM2.16bil, including RM1.5bil of external jobs, while outstanding order book stood at RM3.92bil.

Source: AmeSecurities