- We maintain HOLD on Sunway, with an unchanged fair value of RM3.08/share, based on a 5% discount to an SOP value of RM3.23/share.

- Sunway’s 1QFY14 core net earnings of RM110mil (-30.5% QoQ, +22% YoY) are in line with expectations, accounting for 24% and 23% of our and consensus forecasts, respectively. No dividend was declared.

- The bottom line performance was on the back of a flat YoY revenue growth (+0.5%) to RM1.03bil, but down 24% QoQ. Its1Q is traditionally weaker than 4Q due to seasonality.

- Operating profit (EBIT) at RM116mil (-13% QoQ, +35% YoY) was just about in line, accounting for ~20% of our and consensus forecasts. Notably, group EBIT margin improved by 1ppt-3ppts QoQ and YoY to 11.3%, with a strong progress in the construction division.

- The effective tax rate has normalised to 21.4% vs. 4.3% in 4QFY13. Interest cost was lower due to the rights issue proceeds raised last year August.

- The construction division returned to the black, posting an EBIT of RM31mil vs. a loss of RM27.6mil in the previous quarter and up by 13% from a year earlier.

- Sunway said although YoY and QoQ revenue was lower, profit was higher due to the stronger profit recognition from the portfolio of contracts which had reached a more advanced stage with less preliminary expenses.

- Job replenishment totaled RM178mil (for the Sunway Medical Centre Phase 3), bringing the total outstanding order book to RM3.7bil vs. RM3.92bil as at end FY13. The group has set a target of securing RM2.5bil worth of jobs, including 70% of external projects, for FY14F.

- In property development, sales reached RM348mil (effective: RM242mil), while unbilled sales totalled RM2.4bil (effective: RM1.8bil) as at 31 March 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 RM205mil worth of townhouses and semi-Ds at Sunway Wellesley (RM120mil), and Superlink units at Sunway Eastwood Park Villa (RM85mil). - Sunway is to launch its first properties in Iskandar Sunway Iskandar. The launches include RM300mil worth of offices (167 units) and service apartments (328 units) in Medini.

Source: AmeSecurities