• HLIB institutional research maintains a BUY rating on Sunway with SOP TP of RM2.30. Sunway’s share prices tumbled 18.9% from all time high of RM1.96 (15 Sep) to end at RM1.59 on 9 Mar. HLIB believes Sunway (12.8x FY12/18 P/E) should be rerated and trade closer to its peers such as IJM (15.4x FY3/19) and Gamuda (15.4x FY7/18) given its diversified income stream and declassification from property sector (now Trading and Services), coupled with its integrated real estate business model.

• Valuation is undemanding at 12.8x P/E (16.9% lower than its peers) as Sunway is a deep value stock with mature investment properties and the underappreciated trading and healthcare segments, supported by decent DY18 of 4% (vs 3.2% for IJM and 2.6% for Gamuda).

• Benefit from booming medical tourism. In Budget 2018, RM30m was allocated to Malaysia Healthcare Travel Council and Visit Malaysia Year 2020 to promote Malaysia as a top destination for medical tourism. This is likely to benefit SunMed as SunMed is a front-runner for the Flagship Hospital Programme given its expertise and unmatched location.

• The stock is also a cheap entry to healthcare business via Sunway Berhad, which is trading at 12.8x FY18 P/E of 12.8x as compared to IHH 49x and KPJ of 22x. Using a price multiple of 25x, the healthcare segment is estimated to fetch a valuation of >RM1.3bn considering the expansion at SunMed is up and running. Besides, a spin-off of healthcare business is also on the cards along the shareholder value creation journey.

• Potential downtrend line breakout. We believe the stock is grossly oversold and ripe for a downtrend resistance breakout, supported by undemanding valuations and attractive DY against its peers coupled with a steady FY17-19 EPS CAGR of 10%.

• A decisive breakout above downtrend line near RM 1.61 will likely to lift share prices higher towards RM1.66 (50% FR) and RM1.72 (61.8% FR) before testing our LT objective at RM1.82 (YTD high). On the flip side, key supports are situated at RM1.56 (YTD low) and RM1.49 (100w SMA). A breakdown below RM1.49 will trigger further potential selldown towards 200w SMA of RM1.39. Cut loss at RM1.48.

• For LT exposure, investors can consider SUNWAY-WB (RM0.49; Expiry: 3 OCT 2024). We continue to believe that the value of the warrant is enhanced by the first-of-its-kind fixed annual step-down mechanism of RM0.07, which is akin to fixed dividend payments worth RM0.42 at year 7 anniversary. Overall, the exercise price will be reduced from the 1 st anniversary conversion at RM1.86 (premium 48%) by Oct 2018 to RM1.44 (discount 9.4%) by Oct 2024.

Source: Hong Leong Investment Bank Research - 12 Mar 2018