1HFY21 core PATMI of RM108.1m (+57.7% YoY) came below our and consensus expectation. This was largely due to lower contribution from hospitality and leisure businesses as well as lower progressive billing. New sales of RM1.64bn was achieved in 1HFY21 representing 74.5% of Sunway’s FY21 sales target of RM2.2bn. Point to note is the turnaround of healthcare in 1HFY21 vs loss in 1HFY20. Despite the earnings shortfall this quarter, we expect the group to pick up momentum strongly in 4Q inline with economic reopening by government. We cut our earnings forecast by 27.3% in FY21 to account for the drag by hospitality as reflected in lower property investment and lower progressive billing associated with the lockdown in NRP Phase 1 period. We maintain our BUY call with an unchanged TP of RM2.58 based on SOP-derived valuation.

Below expectations. 2QFY21 core PATMI of RM50.9m (-11.0% QoQ, +14.1x YoY) brought 1HFY21’s sum to RM108.1m (+57.7% YoY). The results were below expectation accounting 28% of our and 30% of consensus full year forecasts. Results shortfall was largely due to lower contribution from hospitality and leisure businesses under the property investment segment as well as lower progressive billings recognition under property development segment. 1H21 core PATMI was derived after we excluded the payment to ICPS holder amounting to RM25.7m and subsequently we added back net EIs of RM6.1m (mostly from impairment loss).

Dividend. Declared a first interim dividend of 1.0 sen per ordinary share, going ex on 30 Sept 2021. The group also declared 1H21 preferential dividend of 2.625% (5.25% p.a.) based on the issue price of RM1.00 per ICPS going ex on 30 Sept 2021.

QoQ. Core PATMI declined by 11% on the back of lower revenue by 4.8%. This was mainly due to lower contribution from construction (lower progressive billings), trading and manufacturing (lower sales due to subdued local and overseas market conditions) and quarry segments (lower aggregates and premix sales volumes).

YoY. Core PATMI increased by 14.1x lifted by higher revenue of 73.9%. Improvements were across all business segments due to low base effect (MCO1.0 in SPLY).

YTD. Core PATMI increased by 57.7% attributable to higher revenue of 29.9%. This was underpinned by higher contributions from all business segments except property investments as lockdown had adversely impacted the footfall of mall, hospitality and leisure businesses as well as lower contribution from Sunway REIT.

Property development. New sales of RM1.64bn was achieved in 1HFY21 representing 74.5% of Sunway’s FY21 sales target of RM2.2bn. Unbilled sales rose to RM3.6bn in 2Q21 from RM3.3bn in 1Q21. This was lifted by higher sales of the Group’s Singapore property development projects, Parc Central Residence, which will only be recognised upon completion. Hence, we are expecting better contribution from this project moving forward.

Property investment. We remain hopeful for a gradual recovery of retail segment given the PM’s recent announcement of economic easing for fully vaccinated consumers who can now shop in several retail type stores (electric & electronics, household & kitchen appliances, furniture, sports equipment, clothing & accessories, jewellery and haircuts).

Construction. Current orderbook stands at RM4.8bn which implies a healthy cover of 3.1x on FY20 construction revenue. 1H21 saw RM620m order book replenishment where it mostly came from the Sunway Medical Centre Damansara and precast projects. Furthermore, the division is benefitting from the group's wide expansion in healthcare with several hospitals buildings.

Healthcare. Healthcare segment 2Q21 PBT recorded an impressive 96.5% growth QoQ, bringing 1H21’s sum to RM41.5m (SPLY: LBT of -RM20.5m), attributable to strong recovery in hospital activities with higher number of admissions and outpatient treatments at Sunway Medical Centre (SMC) and Sunway Medical Centre Velocity (SMCV). As a result, the profit of SMC rebounded strongly, while the operating loss of SMCV reduced from -RM21.5m to -RM8.4m in the current period.

Forecast. We cut our earnings forecast by 27.3% in FY21 to account for lower progressive billing as well as lower contribution from group’s property investment segment. Maintain our FY22-FY23 earnings forecasts.

We maintain our BUY call with an unchanged TP of RM2.58 based on SOP-derived valuation. Despite the earnings shortfall this quarter, we expect the group to pick up momentum strongly in 4Q inline with easing of restrictions by government. To-date, the Group has managed to get 95% of its workforce fully vaccinated and is well positioned to capitalise on the anticipated strong recovery in the later part of this year. Sunway remains our top pick given its well-integrated property, construction and building material operations. With its wide ranging business exposure, the group is a good proxy to the eventual economic recovery. The group has a huge potential in growing its healthcare business with its strategic partner of Singapore GIC.

Source: Hong Leong Investment Bank Research - 25 Aug 2021