As of the recent 1QFY19 reported results, the Healthcare segment is now reported as a standalone segment, separated from the Others segment. With regards to the quarry business, we understand that it will be a new pillar of growth moving forward. Recall that on 12 April 2019, Sunway Property (Australia) Pty Ltd was incorporated. After further clarification with management, we note that operations in Australia are still in the exploratory stage with view of possible landbanking in the longer term. Our forecast remains unchanged as the meeting yielded no major surprises. Maintain BUY with an unchanged TP of RM2.18 based on a 10% holding discount from SOP derived valuation of RM2.42.

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

Healthcare operations. As of the recent 1QFY19 reported results, the Healthcare segment is now reported as a standalone segment, separated from the Others segment. Management has guided that the Sunway Velocity Medical Centre in Cheras will begin operations in August 2019, increasing total number of beds to 858 (from 636 currently). Note that the existing Sunway Medical Centre still has room for c.50 additional beds. 4 new hospitals in the pipeline over the next 5 years will provide further value to unlock via separate listing of its healthcare business.

Quarry operations. Sunway has been looking to grow its quarry business, via the recent acquisition of two companies primarily involved in the same business. Recall that the quarry business used to be Sunway’s forte, before being sold to Hanson back in the late 1990s. Post-acquisition of the two companies, market share of the aggregates business in Klang Valley increased to 22% (from 10%, as at March 2019) while nationwide increased to 15% (from 6%). With regards to asphalts, market share in Klang Valley and nationwide have both increased to 30%, from 20% and 9%, respectively. We understand that the quarry business will be a new pillar of growth moving forward, further establishing Sunway as a successful conglomerate.

Property development. We can expect FY19 property development earnings to be supported by foreign contribution i.e. the Tianjin project which is slated to complete by end FY19 (c.RM55m to earnings). On the local front, earnings contributions are expected remain relatively flat. Recall that on 12 April 2019, Sunway Property (Australia) Pty Ltd was incorporated. After further clarification with management, we note that operations in Australia are still in the exploratory stage with view of possible landbanking in the longer term.

Ample room for asset monetization. With over RM2bn of matured investment properties, Sunway can monetise its assets 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. Unchanged as the meeting yielded no major surprises.

Maintain BUY with an 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.

Source: Hong Leong Investment Bank Research - 11 Jun 2019