Sunway reported 9MFY20 core PATMI to RM160.3m (-61.6% YoY) which was within expectations. New sales of RM270m was achieved in 3QFY20, bringing 9MFY20 to RM943m (86% of revised target). Effective unbilled sales stood at RM2.5bn (4.6x cover ratio). We expect strong earnings in 4QFY20 as it will be underpinned by the block recognition of property projects delivered in Singapore (RM120m) and Tianjin, China (RM40m). We maintain our forecasts and BUY rating with an unchanged TP of RM1.95 based on a 10% holding discount to a SOP-derived value of RM2.17.

Within expectations. Sunway reported 3QFY20 core PATMI of RM83.9m (+11.3x QoQ, -49.7% YoY) bringing 9MFY20 core PATMI to RM160.3m (-61.6% YoY) which forms 41% of our and consensus full year forecasts. Despite only forming 41% of our estimates, we deem the results within expectations as 4QFY20 will be supported by the handover of overseas projects of c.RM160m to the bottom-line. 9MFY20 core PATMI was derived after excluding -RM13.3m in EIs (-RM16.5m revaluation loss, +RM46.2m gain in relation to a remeasurement of leases and the remaining from impairments and write-offs). No dividends were declared.

QoQ. Core PATMI rose to RM83.9m (+11.3x QoQ) largely due to lesser revenue sources throughout the MCO in 2QFY20 coupled with unavoidable operating costs.

YoY/YTD. Core PATMI fell -49.7%/-61.6% to RM83.9m/RM160.3m on the back of its operations impacted by MCO coupled with lower contributions from its associates.

Property development. New sales of RM270m was achieved in 3QFY20, bringing 9MFY20 to RM943m (86% of revised target). Effective unbilled sales stood at RM2.5bn, representing a strong cover ratio of 4.6x on FY19’s property revenue. 4QFY20 will see the launch of RM1.66bn worth of products, with RM1bn stemming from a private condominium in Singapore.

Construction. SunCon reported 9MFY20 core earnings of RM54m (+600% QoQ, - 10% YoY) while current orderbook stands at RM5.6bn which implies a healthy cover of 3.2x on FY19 construction revenue.

Healthcare. Overall performance in 3QFY20 saw improvements due to higher number of admissions and outpatient treatments following the less restrictive RMCO. Nonetheless, operations were slightly dragged by SMCV registering an operating loss of -RM6.6m (9MFY20: -RM28.1m).

Outlook. We expect strong earnings in 4QFY20 as it will be underpinned by the block recognition of property projects delivered in Singapore (RM120m) and Tianjin, China (RM40m). However, we do caution that the Leisure & Hospitality division may be impacted by the resurgence of Covid-19 cases and CMCO2.0.

Forecast. Unchanged.

Maintain BUY but with an unchanged TP of RM1.95 based on a 10% holding discount to a SOP-derived value of RM2.17. Sunway remains our top pick in the property sector given its well-integrated property and construction developments. The value of the healthcare business (with new hospitals and the SMC expansion coming on stream over the next three years) has yet to be appreciated as it is embedded within the parent-co. This, coupled with the resilient earnings from matured investment properties alongside its growing building materials business and quarry operations , justifies for the re-rating of the stock.

Source: Hong Leong Investment Bank Research - 30 Nov 2020