Sunway reported FY20 core PATMI of RM385.6m (-39.3% YoY) which was within expectations. New sales of RM357m was achieved in 4QFY20, bringing FY20 to RM1.3bn (exceeding their sales target of RM1.1bn). Effective unbilled sales stood at RM1.9bn (3.8x cover ratio). We expect a recovery in FY21 underpinned by higher FY21 sales target of RM1.6bn from property development division with RM2.8bn worth of products targeted to be launched as well as recovery in other divisions. 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 4QFY20 core PATMI of RM225.4m (+168.6% QoQ, +24.5% YoY) bringing FY20’s sum to RM385.6m (-39.3% YoY) which forms 99% of our and 106% of consensus full year forecasts. FY20 core PATMI was derived after we added back RM26.0m in EIs (-RM47.2m revaluation loss, +RM46.2m gain in relation to a remeasurement of leases and the remaining -RM25m from impairments and write-offs).

Dividend. Declared a first interim dividend of 1.5 sen per ordinary share, going ex on 14 Apr 2021 (FY19: 9.07 sen per share). The group also declared preferential dividend of 5.25% per annum on a pro-rata basis (based on the issue price of RM1.00 per irredeemable convertible preference shares) going ex on 14 Apr 2021.

QoQ. Core PATMI rose by 168.6% underpinned by 24.4% increase in revenue driven by higher contributions from most business segments except property investment as well as higher contribution from the results of share associate and JV (from the full recognition of the development profits for the Singapore and China projects which amounted to RM182.5m).

YoY. Core PATMI increased by 24.5% despite registering a decrease in revenue by 5.5% on the back higher contribution from the associate and JV as mentioned above.

YTD. Revenue decreased by 19.8% YoY due to lower contribution across the board except healthcare (+6.1% YoY). EBIT and PBT fell by 56% and 41.1% YoY dragged by lower contribution especially from the group’s property investment and healthcare division due to the resurgence of cases in 4Q which affected footfall and occupancy of mall and hotels, as well as impacted their outpatient treatment at Sunway Medical Centre (SMC). In turn, core PATMI fell by 39.3%.

Property development. New sales of RM357m was achieved in 4QFY20, bringing FY20 to RM1.3bn (exceeding their sales target of RM1.1bn). Effective unbilled sales stood at RM1.9bn, representing a strong cover ratio of 3.8x on FY20’s property revenue. For FY21, management is setting a RM1.6bn sales target with RM2.8bn worth of products targeted to be launched.

Property investment. Moving forward, we anticipate a recovery with the easing restrictions backed by local leisure and business travellers, higher footfall and potential “revenge spending”.

Construction. Current orderbook stands at RM5.1bn which implies a healthy cover of 5.2x on FY20 construction revenue. Furthermore, the division is benefitted from the group's wide expansion in healthcare with numerous hospitals building.

Healthcare. Overall performance in FY20 saw improvements due to higher number of admissions and outpatient treatments following the less restrictive RMCO. As for the 20% healthcare divestment, we understand that it currently at the advance stage of discussion and this potential entrance of a strategic partner should unlocked the value  of the healthcare business and further strengthen its position for listing in the future.

Forecast. Unchanged.

Transfer of coverage; maintain BUY. With the transfer of coverage, we maintain BUY call 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 and offers a proxy to the economic recovery. 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 - 1 Apr 2021