Sunway’s 2018 result was above market and our expectations. Net profit was up 6% yoy to RM656m in 2018, driven by better earnings for all divisions except its property development arm. Revenue growth of 3% yoy in 2018 was above our expectations. Sunway achieved RM1.88bn sales in 2018, 50% yoy higher than RM1.2bn sales in 2017. It is targeting a more conservative sales of RM1.3bn in 2019 given the challenging market conditions. We fine-tune our earnings forecasts. Sunway remains our top large-cap sector BUY with RM1.94 target price, based on 20% discount to RNAV.

Above Expectations

Net profit of RM656m (+6% yoy) in 2018 was 7% above market consensus forecast and our forecasts of RM616m. Revenue grew 3% yoy to RM5.41bn, driven by higher construction (+14% yoy), trading and manufacturing (+11% yoy), and quarry (+11% yoy) revenue. Property development (-37% yoy) and investment (-6% yoy) revenue contracted. PBT eased 2% yoy to RM851m in 2018 due to lower property development (-37% yoy) earnings. This was partly offset by higher property investment (+37% yoy), construction (+9% yoy), trading and manufacturing (+10% yoy) and quarrying (+58% yoy) PBT. Core net profit grew 15% yoy to RM656m in 2018 on lower minorities (-32% yoy).

High Unbilled Sales

Unbilled sales was RM2.1bn as at end-2018. Effective unbilled sales of 1.7bn, equivalent to 2.7x, will contribute to property development earnings in 2019- 21E. However, the earnings recognition from its unbilled sales is back-loaded as 51% of the total is contributed by its projects in Singapore and China, which will be recognised as revenue on completion. Sunway is targeting pre-sales of RM1.3bn (effective pre-sales of RM1bn) in 2019 with RM2bn launches (RM1.7bn effective launches) planned for this year.

Maintain BUY With An Unchanged TP of RM1.94

We continue to like Sunway for its diversified earnings with non-property earnings contributing 49% of group PAT in 2018. The will reduce its exposure to the property sector that is still facing weak demand and high unsold units. We reiterate our BUY call with RM1.94, based on 20% discount to RNAV. Key downside risk is prolonged weak property market and a construction downturn.

Source: Affin Hwang Research - 4 Mar 2019