Despite rising 13% YTD, we expect SUNWAY to stage a breakout above 52W high at RM1.69 soon premised on its strong unbilled sales of RM2.1bn and a robust outstanding order book of RM5.2bn, coupled with diversified earnings with non-property earnings contributing 49% of group PAT in 2018. SUNWAY is trading at an undemanding valuations of 7.9x FY19E P/E (49% lower than its peers 15.6x and 14% discount to its 10Y average at 9.2x), supported by a strong FY18-20E earnings CAGR of 17% and decent DY of 4.8%. The stock should be rerated and trade closer to its peers such as IJM (19x FY19 P/E and 2.6% DY) and Gamuda (12.1x FY19 P/E and 4.1% DY).

HLIB reseach reiterates BUY rating with TP at RM2.18, another 31% upside. Maintain BUY with unchanged TP of RM2.18 based on a 10% holding discount from SOP-derived valuation of RM2.42. 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. We continue to like Sunway for its diversified earnings with non-property earnings contributing 49% of group PAT in 2018. The will reduce its exposure to the property sector that is still facing weak demand and high unsold units.

Landbank. Sunway has a total of 3,289 acres (143.3m sqft) of landbank available for development, which amounts to RM56.8bn GDV (effective GDV: RM37.6bn) for a development period over 15 years. With regards to the region composition, Johor accounts for over half of the landbank and GDV, while Klang Valley comes in second.

Active capital management. Sunway’s active capital management allows for better control over its gearing position, preventing it from surpassing the threshold net gearing of 0.5x. Recall that the recent disposal of Sunway University (RM550m) to Sunway REIT had been carried out in order to fund working capital and CAPEX. With new medical centres in the pipeline and possible quarry expansion moving forward, we do not discount the possibility of further asset unlocking exercises; Sunway’s matured investment properties fetches over RM1.5bn.

Downtrend reversal to retest LT target near RM1.90 amid double bottom formation. We believe Sunway’s cheap valuation at 7.9x FY19 P/E and attractive DY of 4.8% provided sufficient margin of safety and cushion further sharp share price decline. We believe the outlook for Sunway remains promising premised on its unbilled sales of RM2.1bn and a robust outstanding order book of RM5.2bn. Overall, the double bottom pattern breakout above the major key resistances bodes well for future medium to long term appreciation targets at RM1.73-1.90 levels. Key supports are situated at RM1.63 (50d SMA) and RM1.58 (38.2%). Cut loss at RM1.56.

Source: Hong Leong Investment Bank Research - 18 Mar 2019