Results

• FY14 core PATAMI (after adjusting for EI of RM151.5m) jumped by 22.3% yoy to RM591.7m (34.3 sen/share) which came above expectations, making up 113.4% and 118.2% of ours and consensus’ full year forecasts.

Deviations

• Wider-than-expected margins from property development.

Dividends

• Declared second interim dividend of 6 sen/share, totalling FY14 dividend to 11 sen/share. This represents dividend payout and yield of 32% and 3.3%, respectively.

Highlights

• Results… FY14 revenue of RM4.8bn showed a growth of 2.6% yoy mainly due to improved performance from all business segments except trading and manufacturing segment.. The better-than-expected results were also coming from the margins improvement by 2-ppts to 12.2% (FY13: 10.2%).

• Property… Local property development projects grew significantly in FY14 but was offset but the poor performance from its projects in Singapore, which resulted in flattish operating profit for the segment.

• As at FY14, property sales reached RM1.3bn while its effective unbilled sales stood at RM1.9bn (1.6x of Sunway’s FY14 property development revenue). Sunway launched RM1.7bn worth of properties in FY14 and targets to launch another RM2.0bn in FY15.

• Property Investment… Slightly higher revenue in FY14 due to additional revenue from Sunway Pinnacle and the extension of Monash University Malaysia. EBIT grew further in the back of better performance by hospitality division and higher rental income.

• Construction… Higher progress billings in Malaysia resulted in higher FY14 revenue. Bottomline improved further from higher contribution from precast division, while FY13 was impacted by provisions of doubtful debts made in respect to a project in Abu Dhabi (RM24.0m). In FY14, Sunway managed to replenished RM1.1bn worth of order book and its outstanding order book now stands at RM3.1bn (1.7x of Sunway’s FY14 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

• We tweaked our margins for property development segment slightly higher, hence FY15-16 EPS is raised by 4%. We also introduced FY16 numbers.

Rating

BUY

• Although share price have declined 4% since our upgrade in target price in Sept ’14, we remain optimistic about the group, especially with the proposed listing of SunCon as it would further enhance shareholders’ value. As such, we are upgrading our recommendation to BUY and advise investors to accumulate.

Valuation

• Post earnings revision, our TP is upgraded to RM3.71 from RM3.65, based on SOP valuation. Maintain BUY.

Source: Hong Leong Investment Bank Research - 26 Feb 2015