Sunway’s 1H18 core PATMI of RM262m (+5.7% YoY) was within expectations. Stronger QoQ results were driven by stronger contributions from all segments except for property investment while higher YoY results were mainly due to the lower share of minority interest. YTD estimated sales have exceeded FY18 sales target of RM1bn and unbilled sales has improved to RM1.4bn (1.4x cover). We adjust our FY18/19/20 forecasts by -1.9%/-10.9%/+2.0% to reflect the deferment of recognition following the adoption of MFRS 15 and revised forecasts for SunCon. Maintain BUY with higher SOP-derived valuation TP of RM2.20.

Within expectations. 1H18 revenue of RM2.6bn translated into core PATMI of RM262.1m, accounting for 42.4% and 43.3% of HLIB and consensus full year forecasts, respectively. We deem the results in line as 1H usually make up only 42- 45% of full year earnings.

Dividend. Declared 1st interim dividend of 3.5 sen (2Q17: 3 sen) per share, going ex on 24 Sept 2018, representing an annualized yield of 4.5%.

QoQ. The decline in 2Q revenue (-1.6%) was mainly due by lower progressive billings from property development following the handover of Sunway V-Residence in 1Q. However, Core PATMI increased by 15.0%, in tandem with stronger contributions for all segments except for property investment due to lower leisure-related contribution.

YoY. Revenue grew by 3.8% with better contributions from all segments, except for quarry and property development, which was impacted by lower sales and progress billings from local projects. Core PATMI increased marginally (+1.0%), thanks to the lower share of minority interest for Sunway South Quay as it is now wholly-owned.

YTD. Revenue grew by 11.3% with better contributions from all segments, except for property development, which was impacted by lower progress billings and fewer local projects. Meanwhile, core PATMI improved by 5.7% to RM262.1m given the better performance for all segments other than building materials.

Property development. New effective sales of RM800m was achieved in 1H18 and YTD estimated sales has exceeded FY18 effective sales target of RM1bn, underpinned by the strong take-up of recent launches in Sunway GEOLake, Sunway Citrine Lakehomes and Sunway Gardens in Tianjin. Unbilled sales improved to RM1.4bn (1Q18: RM811m) representing 1.4x of FY17’s property revenue, thanks to the strong sales in Rivercove Residences in Singapore.

Property investment. Better overall YoY performance was achieved with contributions from new Sunway Velocity Hotel and Sunway Geo.

Construction. Stronger YoY results due to higher progress billings and lower intra group eliminations. SunCon’s current order book stood at RM5.8bn (3x cover on FY17 revenue) and is targeting RM1.5 of new jobs in FY18 (RM854m has been achieved).

Forecast. We adjust our FY18/19/20 forecasts by -1.9%/-10.9%/+2.0% to reflect the deferment of recognition for its Rivercove Residences following the adoption of MFRS 15 and account for the revised forecasts for SunCon.

Maintain BUY with higher TP of RM2.20 (from RM2.19) based on a 10% holding discount from SOP-derived valuation of RM2.45 (Figure #2) after taking into account the updated TP of SunCon and SunREIT. We continue to like the resilient integrated real estate business model and earnings growth prospect with mature investment properties and underappreciated trading and healthcare businesses.

Source: Hong Leong Investment Bank Research - 23 Aug 2018