- We maintain BUY on Sunway, with an unchanged fair value of RM3.54/share, 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 posted a 3Q core net profit of RM147mil (+7.5% QoQ, -1.5% YoY), bringing the total for 9MFY15 to RM414.4mil (+7.5% YoY) – in line with expectations and accounting for 75% of our and consensus forecasts.

- No dividend was declared, apart the first interim of 5 sen/share and the special dividend of 26 sen/share. We expect another 5 sen/share payout.

- Sunway’s 9MFY15 net profit of RM518mil included a RM110.8mil fair value gain from associate and gain on disposal of RM23mil. The improved performance was mainly on the back of improved margins.

- Of continuing concern is the underperformance of the property development division, with the division’s 9MFY15 revenue and core PBT accounting for only 60% and 35% of our full-year forecasts.

- Encouragingly, Sunway still had RM2.3bil (effective: RM1.7bil) worth of unbilled property sales as at end-Sept 2015 – maintained from end-June.

- The trading & manufacturing division was also affected due to the implementation of the GST and the drop in oil and commodity prices.

- The shortfalls were made up by the strong operating performance of the construction and the property investment divisions.

- For the construction division, revenue was lower YoY due to a greater intra-group elimination in 3Q15 as a result of higher proportion of internal jobs.

- The division was exceptionally strong, with EBIT being boosted mainly by a reversal of over-elimination of intragroup profit in the previous quarter.

- Sunway Construction Group’s (SCG) current outstanding order book amounts to RM4.3bil vs. RM2.69bil as at end- June 2015. YTD, SCG has secured RM2.6bil worth of jobs.

- Reiterate BUY. We believe Sunway’s long-term prospects are intact, notwithstanding the current blip in the property market, while its other divisions, including property investments, will cushion the negative impact.

Source: AmeSecurities Research - 27 Nov 2015