Results

• Within Expectation: 4QFY16 core earnings improved by 9% QoQ, bringing FY16 earnings to RM547m, making up 103% and 105% of our and consensus full year forecasts respectively.

Dividends

• Declared cash dividend of 4 sen/share and share dividend distribution of 1 treasury share for every 100 shares held (equal to 3.14 sen/share), bringing full year dividend to 12.14sen/share (in line with our expectation).

Highlights

• YoY: 4QFY16 revenue fell slightly by 3% and core earnings fell by 10%. This is mainly attributed to pre-opening expenses incurred for Sunway Velocity Mall and lower contribution from associates.
• QoQ: Core earning improved by 9% mainly due to higher contribution from property development which was boosted by the handover of Sunway Geo Retail Shops and Flexi Suites Phase 1 and sales of Penang land to Sunway REIT.
• Property? Effective property sales for 4QFY16 achieved RM285m (versus RM179m in 3QFY16), bringing FY16 effective sales to RM923m, slightly exceeding full year sales target of RM900m. FY16 sales were mainly contributed by sales from Sunway Mont, Velocity, Gandaria, Singapore and China. Effective property unbilled sales stood at RM1.1bn, representing 1x of FY16?s property revenue. Sunway is maintaining its effective sales target of RM900m (flat YoY) for FY17 on the back of 10 projects launches with total GDV of RM2bn (versus RM650m in FY16).
• Construction beat target? SunCon secured RM2.7bn new job wins (FY15: RM2.6bn), surpassing its initial target of RM2.5bn. Its orderbook of RM4.8bn translates to a healthy cover of 2.7x on FY16 revenue. Going forward, SunCon aims to secure RM2bn worth of contracts in 2017.
• Potential listing of the healthcare division could be one of the re-rating catalysts in long term as Sunway is targeting to increase total bed from 400 beds to 1,000 beds with new hospitals in Sunway Velocity and Seberang Prai.

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 unchanged TP of RM3.75 based on SOP valuation.

Source: Hong Leong Investment Bank Research - 28 Feb 2017