Core net profit of RM303m (+19% yoy) in 1H17 was within expectations. For 1H17, all business segments saw revenue growth except property development (-25% yoy) and quarry (-0.4% yoy). We maintain our FY17E earnings but revised up FY18-19E to account for new projects to be launched in FY18. We raised our TP to RM4.90 (20% discount to RNAV) after introducing healthcare segment valuation at PER 28x and to account for 5 newly acquired lands in FY17. Sunway’s CY18E core PER of 13x is attractive compared to WCT’s 14x and MRCB’s 21x.

Within Expectations

Sunway’s 1H17 result was in line with consensus and our expectations. Core net profit of RM303m (+19% yoy) in 1H17 accounts for 50-54% of consensus and our full-year forecasts of RM563-609m. Revenue grew 5% yoy to RM2.3bn in 1H17, contributed by all its business divisions except property development and quarry, which saw revenue contraction of 25% and 0.4% yoy respectively. For 2Q17, all business segments except quarry contributed to the group’s pre-tax profit of RM271.4m (+77% yoy), which also includes Sunway REIT’s fair value gains of RM33.1m.

Weak Property Development and Quarry Business

For 1H17, revenue and pretax profit for property development shrank by 25% and 23% yoy respectively. This is mainly due to lower sales and progress billings for local development projects and no contribution from Avant Parc, Singapore as the project was fully sold in 2Q16. Quarry’s pretax profit has dropped by 76% yoy to RM4.2m in 1H17 due to lower operating margin and higher depreciation expense for additional fixed assets.

Tweak Our Forecasts

We maintain our FY17E earnings but revised up FY18-19E by 5.5-6.6% to account for newly acquired lands (i.e. Wangsa Maju land) to be launched in 2018 onwards. The current property unbilled sales of RM1.2bn and construction order book of RM4.3bn supports our projected core EPS growth 11% in FY18E. New contracts secured ytd was RM991m and property sales achieved was RM376m in 1H17.

Raised Our TP to RM4.90

We raised our TP to RM4.90 from RM4.22 (based on 20% discount to RNAV) after including the estimated value of its healthcare division (PER of 28x, 20% discount to local peers) and 5 newly acquired lands (total land bank: 3.3bn acres with total effective gross development value of RM3.6bn). We reaffirm our BUY call and continue to like Sunway its integrated business model with healthcare and education segments complimenting its property business.

Source: Affin Hwang Research - 30 Aug 2017