Net profit of RM108m (+6% yoy) in 1Q17 was within expectations. We leave our forecasts unchanged as 1Q is traditionally weaker than later quarters. Construction order book of RM4.6bn and property unbilled effective sales of RM1.1bn should support core EPS growth of 16% yoy in 2017E. We see the core 2017E PER of 12x as attractive and reaffirm our BUY call and TP of RM3.90 based on 30% RNAV discount.

In Line With Expectations

Sunway’s 1Q17 result was within consensus and our expectations. Net profit of RM108m (+6% yoy) in 1Q17 accounted for 18-19% of consensus and our full-year forecasts of RM566-609m. We expect better performance in subsequent quarters on higher sales and progress billings. Net profit fell by 42% qoq on lower revenue (-20% qoq). Property development revenue declined 39% qoq in 1Q17 as the Penang land sale to Sunway REIT and Sunway Geo Phase 1 project were completed in 4Q16.

Lower Sales and Progress Billing

Group revenue grew 2% yoy to RM1.09bn with all business segments seeing yoy revenue growth; ie, property investment (+11%); construction (+2%); trading and manufacturing (+27%); quarry (+4%) and others (+30%). But property development revenue fell 39% yoy on lower effective sales (RM125m) and progress billing on local projects and no sale was recorded for Avant Parc, Singapore, as the project was fully sold in 2Q16.

PBT Contraction

In 1Q17 PBT fell 13% yoy to RM153m on lower operating margins in the property-development division, higher expenses for the opening of Sunway Velocity mall, and lower operating margins at its aggregates and premixquarry business. PBT fell by a sharper 43% qoq in 1Q17 on the absence of fair value gains from the year-end revaluations of investment properties (RM37.4m) and write-back of loss provisions for Winstar group in 4Q16.

Maintaining Our Forecasts and TP of RM3.90

We maintain our earnings forecasts at this juncture as Sunway has planned more aggressive launches worth RM2bn in 2017. It achieved sales of RM142m (effective sales of RM125m) in 1Q17. The current unbilled sales of RM1.4bn (unbilled effective sales of RM1.1bn) and year-to-date new contracts secured worth RM894m should sustain our projected earnings growth. The current construction order book stands at RM4.6bn. We reaffirm our BUY call. Key risk: prolonged property market weakness

Source: Affin Hwang Research - 29 May 2017