- We maintain BUY on Sunway, with a lower fair value of RM3.54/share (vs. RM3.74/share previously), based on a 15% discount to our SOP value of RM4.18/share. Our fair value represents an implied PE of 11x FY15F – +2STDV above its historical 5-year forward PE mean of 8x.

- Sunway has halved its property launch target for FY15 to RM1.05bil (effective: RM896mil) from RM2.0bil (effective: RM1.5bil) previously.

- It now targets sales of RM1bil (effective: RM750mil) vs. RM1.7bil (effective: RM1.2bil) earlier. Sunway said it has revised its targets downward due to a cautious market.

- Property sales were registered at only RM478mil (effective: RM353mil) in 1HFY15, in the absence of launches during that period.

- We maintain our earnings forecasts for now. Mitigating the slowdown in property development was an unbilled sales of RM2.3bil (effective: RM1.7bil) as at end-June 2015.

- Earnings could also be propped up by its listed subsidiary Sunway Construction Group Bhd (SCG), whose current outstanding order book is now well over RM4bil.

- SCG recently secured a RM1.61bil contract with Putrajaya Bina S/B for the construction of government office buildings.

- That brought the total secured so far this year to RM2.2bil – far exceeding our new order assumption of RM1.8bil for FY15F.

- In a later award, SCG garnered a RM175mil contract with another Sunway unit Sunway Iskandar Sdn Bhd, for the construction of 222 linked houses, cluster homes and semi-detached houses in Johor Bahru.

- Recall, Sunway posted 1H15 net profit of RM267mil (+13% YoY), which came in within expectations, on the back of an already strong performance at its construction division.

- Compared with its peers, Sunway’s valuations continue to lag and are undemanding (see Exhibits 4-6 on page 4).

- Reiterate BUY for its healthy construction outstanding order book and exposure to the iconic Sunway Iskandar development, whose longer-term prospects remain intact.

Source: AmeSecurities Research - 23 Oct 2015