Sunway’s 1QFY19 core PATMI of RM131.2m (-19.3% QoQ, +9.4% YoY) was within expectations as 1Q numbers are seasonally weaker. Weaker results QoQ was largely due to lower contributions from all segments coupled with lower net interest and JV contributions. Stronger YoY results were mainly due to higher net interest and improved JV contributions. New effective sales of RM172m were achieved and management is maintaining its FY19 sales target of RM1.7bn as it notes that 1Q sales are typically slow. Unbilled sales stood at RM1.8bn (strong cover ratio of 2.9x on FY18’s property revenue). The healthcare segment is now reported as a standalone segment, as opposed to being grouped under the Others segment. We introduce FY21 numbers and maintain our BUY call with an unchanged SOP-derived valuation TP of RM2.18.

Within expectations. 1QFY19 core PATMI of RM131.2m was within expectations, accounting for 20.8% and 20.9% of HLIB and consensus full year forecasts, respectively. We deem the results within expectations as 1Q numbers are typically weaker and the earnings recognition of the Tianjin project to filter in to FY19. No dividends were declared.

QoQ. Revenue decreased -18.0% mainly due to lower contributions from all segments except Trading and Manufacturing. Core PATMI decreased -19.3% to RM131.2m in tandem with revenue coupled with lower net interest and JV contributions.

YoY. Despite revenue decreasing -12.3%, core PATMI increased +9.4% attributed to higher net interest and improved JV contributions.

Property development. New effective sales of RM172m (+22% YoY) was achieved in 1Q19, representing 10% of FY19 sales target of RM1.7bn. Management is still maintaining its sales target as it notes that 1Q sales are typically slow. Unbilled sales stood at RM1.8bn (4Q18: RM2.1bn) representing a strong cover ratio of 2.9x on FY18’s property revenue.

Property investment. Improved PBT contribution YoY was achieved mainly due to higher contributions from Sunway Geo and theme parks. On the other hand, weaker PBT contribution QoQ was largely attributed to seasonality factor.

Construction. SunCon’s 1QFY19 recorded lower PBT (-5% YoY) largely due to substantial completion of project Parcel F, Putrajaya and delay in both LRT 3 and MRT 2 work packages from the review of station works. SunCon’s current orderbook stands at RM5.4bn (ex. Precast) which implies a healthy cover of 2.6x on FY18 construction revenue.

Healthcare. The healthcare segment is now reported as a standalone segment, as opposed to being grouped under the Others segment. We believe the reported PBT of c.RM60m recorded in FY18 will be sustained in FY19 as the initial operating losses of the new hospital should be offset by the increasing contributions from SMC3.

Forecast. We introduce FY21 numbers with core PATMI at RM769.8m.

Maintain BUY with unchanged TP of RM2.18 based on a 10% holding discount from SOP-derived valuation of RM2.42 (Figure #2). 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 - 29 May 2019