Sunway’s FY18 core PATMI of RM570m (+3.6% YoY) was within expectations. Stronger results QoQ/YoY/YTD was largely attributed to improved JV contributions and higher net interest. Management has sales target of RM1bn and GDV launch target of RM1.7bn for FY19. Unbilled sales stood at RM2.1bn (strong cover ratio of 3.4x on FY18’s property revenue). Maintain forecasts and BUY call with unchanged SOP-derived valuation TP of RM2.18.

Within expectations. FY18 core PATMI of RM570m was within expectations, accounting for 98% and 99% of HLIB and consensus full year forecasts, respectively.

Dividend. Proposed second interim dividend of 2 sen per share (4QFY17: 3.0) and a distribution of 1 treasury share for every 100 existing shares (based on closing price RM1.62), bringing 4QFY18 proposed dividend effectively to 3.62 sen per share and FY18 dividend to 7.12 sen per share (FY17: 6.0).

QoQ. Despite revenue decreasing 5.1%, core PATMI increased 11.8% to RM162.5m attributed to higher net interest (from its well managed treasury operations) coupled with improved JV contributions.

YoY. Despite revenue decreasing 15.8%, core PATMI increased 4.0% attributed to higher net interest, improved JV contributions and lower effective tax rate (17.6% vs 21.6%).

YTD. Core PATMI increased 3.6% to RM570m in tandem with revenue (+3.3%) coupled with higher net interest and JV contributions.

Property development. New effective sales of RM1.56bn (+56% YoY) was achieved in FY18 and has exceeded FY18 sales target of RM1.5bn. Unbilled sales improved to RM2.1bn (3Q18: RM1.8bn) representing a strong cover ratio of 3.4x on FY18’s property revenue. Management is targeting effective indicative launches (i.e. adjusted for stake) to remain relatively flat YoY at RM1.7bn (Figure #4 and #5).

Property investment. Better performance YoY was achieved with contributions from new properties such as Sunway Geo in Sunway South Quay, The Banjaran Hotsprings (additional room inventory) and higher theme park contributions.

Construction. Stronger YTD results due to higher progress billings which were partially offset by lower contribution from precast segment. SunCon’s current order book (Figure #6) stood at RM6bn (2.7x cover on FY18 revenue) and is targeting RM1.5bn of new jobs in FY19.

Healthcare. The Sunway Velocity Medical Centre in Cheras is slated to begin operations by 1H19, increasing total number of beds to 858 (from 618 currently). We can expect Sunway’s well managed healthcare business will enhance the value of its surrounding property development and property investment. The 4 new hospitals in the pipeline over the next 5 years will provide further value to unlock via separate listing of its healthcare business (Figure #7)

Forecast. Unchanged.

Maintain BUY with unchanged TP of RM2.18 based on a 10% holding discount from SOP-derived valuation of RM2.42 (Figure #3). Despite the down cycle of both property development and construction sectors, we continue to like its 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 - 1 Mar 2019