As of 1QFY19, the Healthcare segment will be reported as a standalone segment. The segment recorded c.RM60m of PBT in FY18 and we believe this to be sustainable in FY19 given the improved contributions of SMC 3 will offset the losses from the upcoming hospital. For property, we estimate RM80m-RM90m of earnings contributions to be recognised in both FY19 and FY20 from international projects. We increase our forecasts for FY19/FY20 by +4.9%/+2.9%, respectively and maintain BUY with an unchanged TP of RM2.18.

We recently met up with Sunway’s management and came out feeling positive on the company’s prospects.

Healthcare as a standalone segment. As of 1QFY19, the Healthcare segment will be stripped off from the Others segment and reported as a standalone segment instead. The segment recorded c.RM60m of PBT in FY18 and we believe this to be sustainable in FY19 as the increase in contributions from the established SMC3 would be able to offset the start-up losses from Sunway Velocity Medical Centre (targeted to operate in mid-FY19). Sunway is able to turn its hospitals profitable within a year, largely attributed to talents from surrounding hospitals moving into its hospitals, attracting patients while boosting its reputation.

Contribution from Tianjin filtering into FY19. We can expect a large contribution arising from the Phase 2 of the Sunway Gardens project in Tianjin to be recognised in FY19 (due to MFRS15). Based on our estimates, the project may contribute approximately RM80m-RM90m to earnings. We gather that there is still room for further projects in Tianjin, with higher selling prices to be determined by authorities.

Contribution from Rivercove filtering into FY20. With regards to the Rivercove Residences (effective GDV: RM590m), we estimate approximately RM80-RM90m of earnings to be recognised in FY20 (due to MFRS15). The project has already garnered a take-up rate of 99%.

Upcoming launches in Singapore. We understand that the project in Brookvale, Clementi is targeted to launch in 4Q19 with an estimated GDV of RM1bn, based on 30% effective stake (earnings recognised progressively). With regards to the land in Canberra Link, the project is targeted to launch in FY20, with an estimated GDV of over RM500m, based on effective stake of 35% (earnings recognised upon completion). As such, we remain positive on the property development segment as the sustained international contributions will continue to support division earnings.

Demand for projects in Medini remains healthy. This is largely attributed to the proximity to its International School which is expanding (attracting expats) and townhouse projects being not commonly found in Johor Bahru.

Monetisation of properties. Sunway has over RM2bn of matured investment properties which can be monetised via disposal to Sunway REIT. The asset unlocking exercises will only be carried out only when needed i.e. to fund capex and prevent breaching the threshold net gearing of 0.5x.

Forecast. We increase our forecasts for FY19/FY20 by +4.9%/+2.9%, respectively as we had previously underestimated the contributions from the overseas projects.

Maintain BUY with an unchanged TP of RM2.18 based on a 10% holding discount from SOP-derived valuation of RM2.42 (Figure #4). 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 - 14 Mar 2019