• 3Q23 results met expectations; the key highlight was the surge in property development profit due to its Singapore project.

• Key catalysts are unlocking value from the listing of SHG and more economic activity in Johor benefiting its landbank there.

• Reiterate Add and TP of RM2.57 (10% discount to SOP).

3Q23 Results in Line; Lifted by Lump Recognition of Singapore Project

• 3Q23 core net profit of RM180m (+25% yoy, +18% qoq) brought 9M23 core net profit to RM475m (+7% yoy), driven by higher contribution from property development and construction. 9M core net profit was at 66% of our and Bloomberg consensus full-year core net profit estimates. We expect a stronger 4Q and for our FY23F core net profit to be met.

• The key highlight for 3Q23 was its property development division with pretax profit surging 97% yoy to RM70m. This was due to lumpy profit recognition for one executive condominium project in Singapore known as Parc Canberra (GDV S$530m; Sunway’s effective stake of RM560m) which was completed in 3Q23 and fully sold. This contributed RM46m development profit for 3Q23. The accounting treatment in terms of profit recognition for executive condominium projects is upon completion and not by percentage of completion. Property presales were RM585m in 3Q23 (2Q23: RM1bn), bringing 9M23 to RM2.09bn; we believe Sunway may exceed its RM2.3bn guidance for FY23F.

• Sunway Healthcare Group’s (SHG) 3Q23 share of JV profit increased 7% yoy and 18% qoq to RM44m due to strong performance from Sunway Medical Centre (SMC) Sunway City and SMC Velocity. This offset the share of start-up losses from SMC Penang and Sunway Sanctuary of RM4.9m. There was also additional tax payable of RM5.2m due to exhaustion of its investment tax allowance in FY22.

Property – Valuable Johor Landbank May See More Activity

• The take-up rates for its local launches this year picked up in 3Q23, with Sunway Flora Residences Bukit Jalil (RM300m gross development value, GDV) achieving 79% takeup (74% in 2Q23). Sunway Aviana in Iskandar Puteri (GDV RM94m) was launched in Oct 23 and has already achieved take-up of 57%. However, take-up rates for its Singapore private condominium projects have been slower with take-up rates for Terra Hills Pasir Panjang in Singapore (S$845m GDV) at 39% in 3Q23 (36% in 2Q23), and Continuum in Singapore (RM2bn GDV) achieving a 33% take-up rate in 3Q23 (27% in 2Q23).

• Sunway’s landbank of 1,770 acres in Johor (Pendas and Medini) may be a prime beneficiary of more economic activity such as the Johor-Singapore special economic zone, the Johor Bahru-Singapore Rapid Transit System (RTS) Link (due to open in 2026) and possible revival of the Kuala Lumpur-Singapore High Speed Rail (HSR).

Upside to SHG’s Valuation?

• We have valued SHG at an FY25F EV/EBITDA of 15.8x, translating to RM7.2bn value, in our SOP valuation. Assuming a multiple of 20x FY25F EV/EBITDA which is the sale price of Ramsay Sime Darby Healthcare to Columbia Asia, our valuation for SHG rises to RM9.1bn (+46%) and our SOP for Sunway climbs to RM3.10 (our TP is based on a 10% discount to SOP).

Reiterate Add, RM2.57 TP

• We like Sunway as a diversified investment proxy for a robust domestic economy with its strong property and construction franchise and growing exposure to healthcare (including medical tourism). Key downside risks: a slowing economy which will impact most of its divisions and rising raw materials costs. Key catalysts are stronger property sales, higher construction new wins which may come from a Vietnam power plant project, and faster-than-expected IPO of its healthcare unit.

Source: CGS-CIMB Research - 22 Nov 2023