Sunway’s net profit grew 14% yoy to RM136m in 1Q19. Although the earnings are lagging our 2019E forecast, we deem the result in line as we expect a stronger 2H19. Sunway achieved property sales of RM263m in 1Q19. New planned project launches worth RM2bn are expected to spur higher sales in subsequent quarters. We fine-tune our core EPS forecasts and raise our TP to RM1.98, based on the same 20% discount to RNAV. Sunway remains our top large-cap property BUY.

Within Expectations

Net profit of RM136m (+14% yoy) in 1Q19 comprises 20-22% of full-year market-consensus and our forecasts of RM627m and RM669m respectively. We expect a stronger 2H19 performance as new property sales and acceleration in construction progress billings drive revenue growth. Revenue contracted 12% yoy as most divisions saw lower revenues except its property investment (+2% yoy) and healthcare (24% yoy) segments. Property development revenue fell 34% yoy while construction revenue declined 22% yoy in 1Q19, reflecting slower progress billings.

Higher Profitability

Group PBT was up 11% yoy to RM177m in 1Q19, driven by higher PBT from property development (+20% yoy), construction (+5% yoy) and healthcare (+43% yoy). The higher property development PBT was due to the reversal of previous provisions, construction PBT was lifted by lower intra-group profit eliminations, and higher healthcare PBT was due to higher occupancy and new beds added. Property sales of RM263m in 1Q19 were higher than the RM166m achieved in 1Q18.

High Unbilled Sales and Order Book

Total launches of RM2bn are planned with a conservative sales target of RM1.3bn in 2019 (compared to RM1.8bn achieved in 2018) due to the challenging property-market conditions. We expect high property unbilled sales of RM2.2bn and a construction order book of RM5.7bn will support earnings growth in 2019E.

Maintain BUY With a Lifted TP of RM1.98

We raise our RNAV/share estimate to RM2.47 from RM2.42 as we roll forward our valuation base year to 2020E while revising the segmental contributions. Based on the same 20% discount to RNAV, we lift our TP to RM1.98 from RM1.94. Key downside risk is prolonged weak property market.

Source: Affin Hwang Research - 23 May 2019