Sunway’s 9M17 results were above market and our expectations. We were surprised by the RM56.8m share of fair value gain for its associate, Sunway REIT. Net profit increased 14% yoy to RM456m in 9M17, driven by higher construction, property investment, trading and manufacturing earnings. We raise our EPS forecast by 3% for FY17E to reflect the Sunway REIT fair value gain. We reiterate our BUY call with a RNAV-based 12-month TP of RM2.05.

Above Expectations

Sunway’s net profit of RM456m (+14% yoy) in 9M17 accounts for 78-82% of consensus and our previous full-year forecasts of RM559-585m. Earnings were lifted by the fair value gain for Sunway REIT amounting to RM58.6m in 9M17, higher than the gain of RM23.7m in 9M16. Revenue was up 9% yoy to RM3.65bn in 9M17, driven by higher revenue for construction (+23% yoy), property investment (+19% yoy), trading and manufacturing (+24% yoy). Property investment earnings were higher due to the maiden contribution from Sunway Velocity Mall, the re-opening of the refurbished Sunway Pyramid Hotel and higher theme park revenue.

Weak Property Development and Quarry Businesses

EBIT fell 2% yoy to RM464m in 9M17 as the higher EBIT for construction (+12% yoy), property investment (+33% yoy), trading and manufacturing (+45% yoy) was offset by the fall in EBIT for property development (-39% yoy) and quarry operation (-68% yoy). Weaker property development earnings were due to lower sales and progress billings for local projects and no contribution from Avant Parc, Singapore (as the project was fully sold in 2Q16).

Slower Sales

Sunway saw lower sales of RM583m in 9M17, down 15% yoy from RM689m in 9M16. Sales are lagging the company’s sales target of RM1.1bn in FY17. Sunway is focusing on selling its unsold units following the cut in its newlaunches target to RM1.1bn from RM2bn previously in FY17. We expect unbilled sales of RM991m to support earnings growth in FY17E.

Maintain BUY

We reaffirm our BUY call and continue to like Sunway for its integrated business model with healthcare and education segments complementing its property business. The current FY18E PER of 12x is attractive compared to other construction/infrastructure conglomerates such as Gamuda (15x), IJM Corp (15x) and MRCB (21x).

Source: Affin Hwang Research - 28 Nov 2017