Results

• Within Expectation : 3QFY16 core earnings improved by 12% QoQ, bringing 9MFY16 earnings to RM386m, making up 73% and 75% of our and consensus full year forecasts respectively.

Dividends

• None.

Highlights

• YoY: 3QFY16 revenue was up by 20% but core earnings was flat. This is mainly attributed to lower interest income (-25%) and higher financing cost (+31%).

• QoQ: Revenue fell slightly by 2% but core earnings improved by 12% QoQ due to better margin from property development and property investment.

• Property… Effective property sales for 3QFY16 achieved RM179m (versus RM312m in 2QFY16), bringing 9MFY16 effective sales to RM638m. This is on track to meet full year sales target of RM900m. 9MFY16 sales mainly contributed by sales from Sunway Mont, Iskandar, Gandaria, Singapore and China. Effective property unbilled sales stood at RM1.3bn, representing 1.2x of FY15’s property revenue. Sunway is targeting RM2bn worth of launches in FY17 (versus RM800m in FY16). We have assumed effective sales target of RM1.2bn in FY17 (+30% YoY) which we believe is likely to be achieved.

• Strong job wins for construction… SunCon secured RM2.6bn new job wins YTD (FY15: RM2.6bn), surpassing its earlier guidance of RM2.5bn. Its orderbook of RM4.8bn translates to a healthy cover of 2.5x on FY15 revenue. Going forward, SunCon is hopeful to secure another private sector job (RM200m) by year end.

• 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.

Risks

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

Forecasts

• Unchanged.

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 increased slightly from RM3.72 to RM3.75 after incorporating new TP for SunCon based on SOP valuation

Source: Hong Leong Investment Bank Research - 28 Nov 2016