The group has a well-planned growth strategy moving into FY23. For property development, it is focusing its launches on the high-end condominiums in Singapore capitalizing on the current strong buying interests there. For healthcare, its new hospital SMC Penang was off to a good start, while there are also other planned expansion pipeline for SMC SC and SMCV for the year respectively. We also highlight that its credit bureau segment had turned profitable in FY22. The segment could be another lever of growth moving forward using Sunway’s vast and diverse ecosystem as its launch pad. Maintain BUY with an unchanged TP of RM2.65 based on SOP-derived valuation.

We Recently Met With Sunway’s Management and Below Are Some Key Takeaways:

Property development. Sunway recently announced its FY23 sales target of RM2.2bn (+25% YoY) and launch target of RM3.4bn (+3.9x YoY) (see Figure #1). Most of the new launch pipelines are from Singapore (76.9%), with the remaining from China (3.4%), KL (8.5%), Johor (7.1%), Ipoh (2%) and Penang (2%).

Singapore new launches. As the group has a diverse presence geographically for property development, it is using this to its advantage to time its launches strategically capitalizing on the local property sentiment. Currently in Singapore, despite the elevated interest rates and the property cooling measures introduced by the government, the local property buying interest remains strong. This is supported by the country’s buoyant economy which attracted high-net-worth entrants to the country. Given the positive sentiment, the group is launching two of its high-end private condominiums in FY23 – Terra Hills in Pasir Panjang (RM700m) and The Continuum in Thiam Avenue (RM2bn). Terra Hills was launched on 25 Feb and had achieved 38% sales (inclusive of bookings) over the same weekend. The average price for Terra Hills is SGD2.65k psf and it is Sunway’s record high selling price so far in Singapore. The strong interests registered for Terra Hills has given the group confidence to launch its upcoming project – The Continuum which is larger in scale compared to Terra Hills. On the two ongoing executive condominium projects in Singapore, i.e. Parc Canberra and Parc Central , management guided that the collective net profit contribution could amount to RM150- 160m and will likely be recognized towards end-FY23 or early-FY24.

Healthcare. Recall that the group recently launched its third hospital SMC Penang in Seberang Jaya in Nov 2022. Management was pleased to share that the hospital has seen very encouraging response from the public. The group attributes the good initial performance to (i) better operating efficiency learning from its experience in managing SMCV; and (ii) lack of quality healthcare services in the mainland Penang area. For example, from its experience in SMCV, the group was able to on-board major insurance companies to its paying system in SMC Penang during the start of its operations, while this had taken 1.5 years to incorporate in SMCV previously. The biggest challenge for SMC Penang is the shortage of nurses. Nonetheless, the group is thankful that it can tap into its sister education facility - Sunway University to source for nurses. Given the encouraging performance in SMC Penang, management is optimistic that SMC Penang could turn profitable as early as end-FY23, while this has taken SMCV two years to achieve previously.

2023 healthcare pipeline. Other than SMC Penang, the group plans to launch its Tower D from SMC Sunway City (SMC SC) in May 2023. The new Tower D will comprise of (i) medical suites for the lower 18 floors; and (ii) senior living named Sunway Sanctuary on the upper 18 floors. The medical suites will be an expansion from its existing facilities from Tower A-C. Currently, Tower A-C facilities are operating at close to maximum capacity, especially for its operating theatres. The addition of Tower D will help alleviate the pressure on its existing facilities and improve SMC SC overall operating efficiency. The new tower should also capture the growing demand for SMC SC healthcare services. Separately, the Phase 2 expansion for SMCV is expected to open by 3Q23. Given the commencement of several new healthcare facilities, including SMC Penang, SMC SC expansion in medical suites and senior living as well as SMCV expansion, management expects that the healthcare segment will likely register a flattish or slightly lower performance in FY23 compared to FY22 as these new facilities will incur initial operating losses.

Stake in Credit Bureau Malaysia. Recall that in June 2020, Sunway acquired a 51% stake in Credit Bureau Malaysia (CBM) for RM14.9m. CBM is one of the only three credit reporting agencies (CRA) approved by BNM with access to BNM’s CCRIS reports. The other two CRAs are CTOS and Experian. In two years’ time, Sunway was able to turn around the segment and recorded a slight profit in FY22. Given the Sunway group’s diverse exposure in various business segments, CBM can tap in to the group’s vast network and ecosystem as a starting point for customer acquisition. For example, Sunway’s different businesses and their associates could use CBM for credit checks on their vendors and suppliers. In addition, CBM also complements with Sunway’s other fintech solutions such as money lending, hire purchase, factoring, cross-border remittance and others. Sunway has a successful track record in managing different business segments, for example, where its healthcare originally started as a township enabler but had since taken a life on its own and grown sizeably. Similarly, CBM has the potential to grow beyond the Sunway ecosystem once the business matures. We see value in this segment especially given the rich valuation market is ascribing to its peer CTOS.

F4GBM Index membership. Recall that in Dec 2022, Sunway was excluded from the FTSE4Good Bursa Malaysia (F4GBM) Index and the FTSE4Good Bursa Malaysia Shariah (F4GBMS) Index. The exclusion was due to the stock not meeting the liquidity criteria for the indices inclusion. Despite the stock not included in these indices, it was still rated by FTSE Russell. In fact, the group’s ESG rating score is among the top in the country, while globally it is also in the top 15 percentile under its industry classification as assessed by FTSE Russell. The stock has recently seen improvement in liquidity so far in 2023 and management shared that the earliest possible re-inclusion date to the indices will be in Dec 2023. Separately, the stock also recently received an ESG rating upgrade by MSCI from “BBB” to “A”.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM2.65 based on SOP-derived valuation. The group has multi levers of growth, particularly with its fast expanding crown jewel, healthcare segment. By investing in the stock, investors could take advantage to gain an early exposure to its healthcare segment prior to its value unlocking exercise through IPO listing to be completed by 31 Jan 2028 or earlier. The segment at this juncture continues to be undervalued but we believe it should be re-rated in due time as it increasingly draw investor’s focus given strong healthcare demand and as the earnings from this segment filters through. Sunway remains our top pick given its synergistic business model with well-integrated property, construction and building material operations.

Source: Hong Leong Investment Bank Research - 10 Mar 2023