News

Sunway has secured a RM282.9m contract for the Urban Wellness development in Medini North from Pulau Indah Ventures (JV between Khazanah and Temasek). Details of the project are illustrated in Figure #1. The construction period is for 26 months from 1 Sep-13 to 31 Oct-15.

Comments

5th major victory… The Urban Wellness project marks Sunway’s 5th significant contract win for FY13. The project represents 22% of FY12’s construction revenue and 8% of its previous outstanding order book of RM3.4bn.

YTD, Sunway has won 5 major projects worth RM1.3bn, making up 87% of our annual order book replenishment assumption of RM1.5bn for FY13.

~1 sen/share… Assuming a net margin of 5%, this project translates to ~0.8 sen/share (FD: ~0.7 sen/share) for Sunway.

Earnings visibility… With the latest project win, Sunway’s external outstanding order book stands at RM3.3bn (see Figure #2), translating to 2.6x FY12’s construction revenue.

Risks

• Execution risk;
• Regulatory and political risk (both domestic and overseas);
• Rising raw material prices; and
• Unexpected downturn in the construction and property cycle.

Forecasts

FY13-14 EPS reduced by 23.4% and 22.2% respectively to take into account of the dilution impact from the recently concluded rights issue.

Rating

HOLD

We continue to like Sunway for its integrated property cum construction business model and we are beginning to see the synergistic effect taking place. The company has strategic land banks in Malaysia coupled with healthy unbilled sales and order book to provide earnings visibility over the next 2 years. However, in view that there is less than 10% upside from our Target Price, we maintain our HOLD call on Sunway.

Valuation

Target Price raised slightly by 0.3% to RM3.18 from RM3.17 based on SOP valuation (see Figure #3) as we update Sunway’s valuation post rights issue exercise.

Source: Hong Leong Investment Bank Research - 26 Aug 2013