Results

• Broadly in line: 2QFY16 core earnings surged by 27% QoQ, bringing 1HFY16 earnings to RM237m, making up 45% of our and consensus full year forecasts. We expect stronger 2H contribution from property and construction.

Deviation

• None

Dividends

• Declared dividend of 5 sen/share.

Highlights

• YoY: 2QFY16 revenue up by 11% but core earnings fell by 3%. This is mainly attributed to lower profit recognition from construction segment due to upfront cost incurred in MRT job and drop in selling prices for aggregates and premix.

• QoQ: Core earnings surged by 27% QoQ due to better performance from trading and manufacturing and quarry division coupled with higher share of profit from JV and associates.

• Property… Effective property sales for 2QFY16 achieved RM312m (versus RM198m in 1QFY16) mainly contributed by sales from Sunway Mont Kiara, projects in Singapore and China. 1HFY16 effective sales already achieved RM510m, on track to meet full year sales target of RM1.1bn.

• For 1HFY16, Sunway only launched Sunway Mont Residences and Sunway Gandaria for a total GDV of RM500m. Both projects are well received with take up rate above 70%. For 2HFY16, Sunway will target to launch RM1.1bn of new projects including Sunway Geo Residences, Sunway Velocity and Sunway Iskandar.

• Property effective unbilled sales stood at RM1.5bn, representing 1.25x of FY15’s property revenue.

• Flow of contract wins for construction… SunCon secured RM2.4bn new job wins YTD (FY15: RM2.6bn), almost hit ting full year guidance of RM2.5bn. Its orderbook currently stands at a record high of RM4.9bn, translating to a healthy cover ratio of 2.6x FY15 revenue.

• Given its strong track record, SunCon has a strong chance to secure some packages of jobs from LRT3, MRT2 and BRT.

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

• Unchanged.

Rating

• BUY

Valuation

• Maintain BUY with TP unchanged at RM3.72 based on SOP valuation.

Source: Hong Leong Investment Bank Research - 30 Aug 2016