Highlights

• Recently, we met up with the management of Sunway and felt positive after the meeting. Below are the key takeaways:

• Leverage on construction boom… Its 54% subsidiary, SunCon (BUY; TP: RM1.94) just won the Package V201 of MRT 2 worth RM1.21bn, after securing RM2.6bn new job wins in FY15. Its orderbook currently stands at a record high of RM5bn, translating to a healthy cover ratio of 2.6x FY15 revenue. Following our upgradi ng of SunCon’s TP from RM1.59 to RM1.94, our SOP for Sunway is raised by 12 sen per share to RM3.75.

• More in the pipeline… Given its strong track record, SunCon has a strong chance to secure some packages of jobs such as the LRT3 (RM9bn), Pan Borneo (RM16bn), DASH (RM4bn and SUKE (RM4bn), all of which to be rolled out this year. Management is targeting to secure RM2.5bn worth of new contracts in FY16.

• Strong turnaround from building material s… Sunway is the leading player in providing vitri fied clay pipes (VCP) with 60-70% market share. This division has been successfully turned around with profit generation of RM30m per annum and is growing at double-digit YoY pace.

• Property – Survival of the fitte st… Integrated property developers with strong balance sheet like Sunway will fare better than small developers in the environment of uncertain outlook with tight lending guidelines. Recurring income from property investment division (circa 40% of income) should help to mitigate the slowdown in property sales.

• Creative campaign to drive sales… Recently, Sunway has introduced a series of new campaigns, including guaranteed loans, deferred payment and voluntary exit plan to attract potential buyers who face di fficulty in securing bank loan. Under the voluntary exit plan, buyers who unfortunately lose their job during the construction period will have the option to cancel the purchase and get back the deposit (nett of expenses). Overall, Sunway is targeting to launch RM1.6bn worth of new projects with sales target of RM1.4bn (+17% YoY).

• Healthcare – Another jewel in the making… Sunway is planning to expand its healthcare division by opening new hospitals in Sunway Velocity and Seberang Perai. This will increase total beds from 365 to 600 beds in mid-2016 with a total target of 1,000 beds in 3 years. Potential listing of the healthcare division could be one of the re-rating catalysts.

Risks

• Unexpected downturn in the construction and property cycle.

Rating

BUY

Valuation

• We continue to like Sunway given its effort on active capital management to reward shareholders (payout of 49/sen per share in FY15, translating to 16% dividend yield). Maintain BUY with higher TP of RM3.75 (previously RM3.63).

Source: Hong Leong Investment Bank Research - 5 Apr 2016