Risk-reward profile turns more attractive. Value has resurfaced after falling 13.5% from a 52-week high of RM1.85 (+65% upside to HLIB SOP TP RM2.65), aided by a strong FY22-24E EPS CAGR of 18% and undemanding valuation of 0.77x P/B (-14% vs 10Y avg 0.9x). We believe that Sunway’s solid fundamentals and its diversified and well managed business model should help it navigate through this challenging period. Earnings wise, we reckon that Sunway’s subsequent quarters’ performance to at least match 1Q22 with potential further upside from: (i) property development (from more launches in subsequent quarters and normalization of margins); (ii) property investment (from progressive ramp up in capacity, strong footfalls to retail malls and increased visitations from economic recovery and borders reopening), (iii) construction division (strong support from parent-co Sunway should provide jobs flow clarity, and is well positioned to partake in various infrastructure roll -outs ahead, including the much anticipated MRT3 project); and (iv) healthcare from recovering patient volumes supported by pent-up demand from both local and foreign patients. To recap, the Block D of Sunway Medical Centre will be ready for launch by end 2022 to early 2023. The 1- 15th floors house the hospital beds while 16-30th floors are for assisted living which will offer steady recurring income.

Riding on multi-levers of growth. The group has multi levers of growth, particularly with its fast expanding crown jewel, healthcare segment. Its efforts to expedite the expansion of its healthcare segment with its new strategic partner GIC, will culminate in the separate listing of healthcare unit to help unlock value in the group. With the economy recovering and borders reopening, the group is ready to harness the full potential of its business as all of its business segments are poised to benefit from it. While the market may value the group as a conglomerate with holding discount, we reckon that there is a re-rating opportunity for Sunway when the market fully appreciate the group’s integrated business model where each segment is well managed in its own regard, as well as complements the overall group’s business model resulting in synergistic value larger than the SOP.

Limited downside amid grossly oversold levels. SUNWAY is grossly oversold and currently is building a strong base at RM1.50-1.56 levels. A successful breakout above the downtrend channel near RM1.64 will spur greater upside towards RM1.71 (200D MA) and our LT objective at RM1.85 (52-week high). Cut loss at RM1.46.

Source: Hong Leong Investment Bank Research - 20 Jul 2022