Results

FY13 core PATAMI (after adjusting for total EI of RM1.02bn) jumped by 38% to RM482.7m (30.61 sen/share), beating ours/consensus estimates by making up 121%/118% of full year forecasts.

Deviations

Strong contribution from construction and property divisions.

Dividends

Net dividend of 5 sen/share declared (2Q: 5 sen), bringing full year payout to 10 sen/share, translating to payout ratio of ~33%, which is in line with our dividend forecast.

Highlights

Results… Full year revenue grew by 15% to RM4.73bn, lifted by stronger activities in nearly all divisions. We believe that the merger between SunCity-Sunway is beginning to bear its synergistic fruits. Overall, core earnings grew by 38% to RM482.7m (30.61 sen/share).

Property… Achieved effective new property sales of RM612m in 4Q, with the bulk of it coming from Novena Singapore and South Quay. Hence, bringing full year effective new sales to RM1.45bn (1Q: RM203m; 2Q: RM288m; 3Q: RM344m), which is largely in line with its effective new sales target for FY13.

For FY14, Sunway is expected to launch RM1.75bn worth of projects mainly in Mount Sophia Singapore and the balance revolving around public transportation theme i.e. BRT in South Quay and MRT railway for Velocity. Overall, effective unbilled property sales stood at RM1.90bn, translating to 1.6x FY13’s property revenue.

Construction… Contrary to our cautious view on the construction sector, Sunway is aiming for RM2bn worth of new external contracts, mainly coming from Governmentrelated tenders. Overall, the division has an outstanding external order book of RM3.12bn, translating to 2.0x FY13’s construction revenue.

Risks

Execution risk; Regulatory and political risk (both domestic and overseas); Rising raw material prices; and Unexpected downturn in the construction and property cycle.

Forecasts

FY14 earnings raised by 6.1% while introducing FY15 earnings.

Rating

BUY

Despite headwinds from property tightening measures and slower contract flows, its recapitalised balance sheet and strong backlog orders will be able to sustain earnings growth for the Group. Moreover, Sunway’s integrated constructionproperty business model should give them an edge in terms of execution. We maintain our BUY call on Sunway.

Valuation

TP raised by 0.9% to RM3.38 from RM3.35 previously based on SOP valuation (see Figure #3).

Source: Hong Leong Investment Bank Research - 28 Feb 2014