Higher operating profit

Sunway was above market expectations but in line with ours. Net profit fell 23% yoy to RM400m in 9M16 due to lower fair value gain on property investments. Core net profit fell by a lower 4% yoy, mainly due to lower construction earnings. Although Sunway Construction’s (Suncon) result was below our expectation, the better performance of other divisions led us to maintain our forecasts. Maintain BUY with RM3.90 target price, based on 30% discount to RNAV.

In line with our expectation

Sunway’s net profit of RM400m (-23% yoy) comprise 78% of full-year forecast of RM515m and 74% of our RM542m estimate. Revenue was up 10% yoy to RM3.36bn in 9M16 with all divisions reporting higher revenue except its quarry operation. The group reported EBIT growth of 38% yoy to RM579m in 9M16, driven mainly by higher property development earnings and profit margin. Lower net one-off gain of RM15m in 9M16 compared to RM103m in 9M15 led to lower net profit yoy.

Lower sales

Effective property sales declined 20% yoy to RM689m in 9M16 compared to RM864m in 9M15. Sales in Malaysia (contributing 71% of total sales) and China (9% of total) declined while it maintained the same level of sales in Singapore (20% of total).Sunway is on track to achieve its revised sales target of RM1.1bn (RM0.9bn effective sales) for 2016. Sunway Mont Kiara, Iskandar and Gandaria are the main projects contributing to sales in 9M16.

More aggressive launches and larger order book

Sunway has planned more aggressive launches worth RM2bn for 2017 compared to RM0.8bn in 2016. Unbilled sales were at RM1.8bn (unbilled effective sales of RM1.3bn). Suncon also secured RM2.6bn new contracts to lift its order book to RM4.8bn. This will support earnings growth in FY17E. We reduce our EPS forecasts for the higher number of shares.

Still a BUY

We like Sunway for its expertise and diversity in property and construction. We reiterate our BUY call with RM3.90 target price, based on 30% discount to RNAV. Risks to recommendation include; i) prolonged downturn in the domestic property market; ii) oversupply within the Johor region persist, iii) execution risks for construction projects.

Source: Affin Hwang Research - 28 Nov 2016