Highlights

• We attended Sunway’s analyst briefing yesterday and uphold our positive view on the company. Key takeaways as below:

• Revised sales target of RM900m due to difference in timing of launching…With the deferred launching of Sunway Geo Residences 3 (GDV: RM400m ), Sunway Iskandar (GDV: RM400m) and conversion of Velocity Offices (GDV: RM200m) into property investment assets, effective sales target in FY16 will be adjusted slightly from RM1.1bn to RM900m. The deferred launching of Sunway Geo 3 is mainly due to resubmission of plan for subdivision of land to include additional walkway connecting to BRT. 9MFY16 effective sales already achieved RM638m which was contributed mainly by Sunway Mont, Iskandar, Gandaria, Singapore and China.

• FY17 launches more than double … With the deferred launching of the 2 projects in FY16, Sunway is targeting RM2bn worth of launches in FY17 (versus RM800m in FY16). We have assumed effective sales target of RM1.2bn (+30% YoY) which we believe is likely to be achieved.

• Underappreciated integrated real estate business model…We continue to like its strong foothold in integrated township development (which is further underpinned by retail, healthcare and education elements). Non-property division contributed 60% of PATAMI which is recurring. Active effort on capital management will continue to reward shareholders given the potential RM2bn worth of assets to be injected into REIT in the near future.

• Healthcare: Growing at fast pace… With the opening of a cancer centre in Sunway Hospital, total beds will be increased from 400 to 600 in FY17. Sunway is targeting a total of 1,000 beds with new hospitals in Sunway Velocity and Seberang Prai. Potential listing of the healthcare division could be one of the re-rating catalysts.

• Exciting development in Sunway Velocity… Sunway Velocity (NLA: 880k sf) has secured 90% occupancy rate and is expected to open by Dec 16. Meanwhile, Velocity Hotel with 350 rooms is under construction and is due for opening in 2H17.

Risks

• Prolonged downturn in Johor’s property market, slowdown in property demand due to tightening of loan approval.

Forecasts

• Unchanged despite lower effective sales target in FY16 as progress of construction and earnings recognition remains intact.

Rating

BUY

• We like the company given its unique integrated real estate business model which provides competitive edge against its competitor. Active capital management will continue to reward shareholders.

Valuation

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

Source: Hong Leong Investment Bank Research - 14 Oct 2016