Sunway’s 2017 results were above the market’s but within our expectations. Core net profit grew by 12.8% yoy to RM588.1m in 2017, driven by all business segments except property development and quarry. The group plans to launch RM2bn worth of property projects in 2018 and current unbilled sales of RM976m should sustain its future earnings growth. We reiterate our BUY call with a RNAV-based 12-month TP of RM2.05. A DPS of 6 sen was declared for 2017 (2016: 5.2 sen).

Within Expectations

After excluding Sunway REIT’s fair-value gain RM71.1m and other exceptional items, Sunway achieved a core net profit of RM588.1m (+12.8% yoy) in 2017. The result was 5% above the consensus estimate but within our 2017 forecast.

Most Business Segments Saw Revenue Growth in 2017

Construction (+37.6% yoy), property investment (+25.1% yoy), trading (+19.6% yoy) and others (30.8%) saw higher revenues in 2017. However, property development and quarry reported declines of 18.2% and 2.6% yoy, resulting in lower group revenue growth of 15.4% yoy to RM5.4bn in 2017.

Dragged Down by Property Development and Quarry Businesses

For 2017, EBIT fell 4.1% yoy to RM635.3m despite the higher EBIT contributions from all business segments except property development (lower domestic sales and progress billings) and quarry (lower sales volume and temporary operation suspension in Rawang quarry for relocation).

Property Sales Maintained

Sunway matched its previous year’s property sales of RM1.2bn in 2017 with the majority contributed by Singapore (39%), followed by Iskandar, Johor (24%) and the rest by Klang Valley. Sunway is focusing on selling its unsold units following the launch revision to RM1.bn from RM2bn in 2017. For 2018, the group plans RM2bn worth of property launches. We expect unbilled sales of RM976m to support future earnings growth.

Maintain BUY With Unchanged Target Price of RM2.05

We made some minor adjustments to our 2018-19E EPS post-2017 results and introduce 2020E EPS. We maintain our BUY call with an unchanged 12-month TP of RM2.05, based on a 20% discount to RNAV. We continue to like Sunway for its integrated business model with its healthcare and education segments complementing its property business.

Source: Affin Hwang Research - 1 Mar 2018