Sunway’s 9M18 core PATMI of RM408m (+4.8% YoY) was broadly within expectations. Stronger YoY results were driven by stronger contributions from all segments except for property development. 9M18 new sales of RM1.4bn have exceeded FY18 target and unbilled sales improved to RM1.8bn (1.8x cover). We adjust our FY18/19/20 forecasts by -3.6%/+6.3%/-3.2% to reflect the recognitions of Sunway Gardens in Tianjin and the revised forecasts for SunCon. Maintain BUY with lower SOP-derived valuation TP of RM2.13 (was RM2.15), reflecting the lower TP for SunREIT.

Broadly in line. 9M18 revenue of RM4.0bn translated into core PATMI of RM407.5m, accounting for 67.1% and 69.7% of HLIB and consensus full year forecasts, respectively. We deem the results as in line as we expect 4th quarter to come in stronger and it usually account for 30% of full year numbers.

Dividend. None (3Q17: None).

QoQ. 3Q revenue of RM1.4bn (+12.2%) was driven by all segments except for quarry segment. However, core PATMI increased by 3.6%, in tandem with stronger contributions for all segments except for property development and quarry; despite the higher share of profit from JV contribution in Singapore.

YoY. Revenue grew by 12.6% with better contributions from all segments, except for quarry (low operating margins) and property investment (lower performance from hotel operations). Core PATMI of RM145.3m was higher (+0.2%) on the back of higher progress billings and the completion of Sunway GEOSense.

YTD. Revenue grew by 11.8% with better contributions from all segments, except for property development, which was impacted by fewer ongoing projects. Meanwhile, core PATMI improved by 4.8% given the better performance for all segments (except building materials) and lower minority interest for local property projects.

Property development. New effective sales of RM1.4bn (+263% YoY) was achieved in 9M18 and has exceeded FY18 sales target of RM1bn, underpinned by the strong take-up in Sunway GEOLake, Sunway Citrine Lakehomes, Rivercove Residences and Sunway Gardens in Tianjin. Unbilled sales improved to RM1.8bn (2Q18: RM1.4bn representing 1.8x of FY17’s property revenue.

Property investment. Better performance YoY was achieved with contributions from better performance from Sunway Velocity Mall, The Banjaran Hotsprings (additional room inventory) as well as new properties in 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 RM5.6bn (3x cover on FY17 revenue) and is targeting RM1.5bn of new jobs in FY18 (RM1.35bn achieved).

Forecast. We adjust our FY18/19/20 forecasts by -4.0%/+4.4%/-3.8% to reflect the recognitions of Sunway Gardens in Tianjin following the adoption of MFRS 15 as well as the revised forecasts for SunCon.

Maintain BUY with slightly lower TP of RM2.13 (was RM2.15) based on a 10% holding discount from SOP-derived valuation of RM2.37 (Figure #2), reflecting the lower TP for SunREIT (HOLD, RM1.66). Despite the down cycle of both property development and construction sectors, 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 - 22 Nov 2018