Results

• Within expectations: FY17 core earnings of RM566.3m came in within expectations at 99.7% and 101.1% of ours and consensus full year forecasts, respectively.

Dividends

• Declared a dividend of 3 sen per share, bringing FY17 dividend to 6 sen (FY16: 5.2 sen) per share.

Highlights

• QoQ: Higher revenue (+30.6%) in 4Q17 was contributed by all segments except trading/manufacturing segments. Core earnings improved by 11.0% largely driven by improved performances from property development and construction.
• YoY: Core earnings grew by 3.5% on the back of higher revenue (+33.2%) thanks to higher contributions from property investment and construction segments.
• FY17: Revenue improved by 15.4% while core earnings inched higher by 3.5%. All segments showed improvements except for property development and quarry segments. Lower contribution from property development was due to lower sales and progress billings from local development in the absence of contribution from Avant Parc.
• Property development. Effective property sales for FY17 achieved RM1bn (FY16: RM923m) exceeding full year target of RM900m. RM1.6bn of effective sales target is set for FY18, underpinned by RM2bn of planned launches. Effective property unbilled sales stood at RM861m (3Q: RM766m), representing 0.87x of FY17’s property revenue.
• Property Investment. Growth was largely attributable to additional contribution from Sunway Velocity Mall (opened in Dec 16), higher visitorship to the theme parks and higher contribution from Sunway Pyramid Hotel which was reopened in 2017 with additional rooms after refurbishment.
• Construction. Stronger results achieved due to higher progress from jobs such as Parcel F Putrajaya and MRT2. SunCon’s current order book stood at RM6.1bn (3x cover on FY17 revenue). For FY18, SunCon is targeting RM2-2.5bn.

Risks

• Prolonged downturn in property market and execution risk.

Forecasts

• Unchanged

Rating

BUY ↔ , TP: RM2.30 ↑

• Sunway is our Top Pick within the sector as we believe it should be rerated and trade closer to its peers such as IJM and Gamuda (Figure #5) given its diversified income stream and integrated real estate business model. At a forward P/E of 13x as compared to peers, we opine that it is a deep value stock with mature investment properties and the underappreciated trading and healthcare segments.

Valuation

• TP is revised to RM2.30 (from RM2.25) based on a 10% holding discount from SOP derived valuation of RM2.56 as we imputed higher TP for SunCon (BUY, RM2.85) and SREIT (HOLD, RM1.80).

Source: Hong Leong Investment Bank Research - 01 Mar 2018