Sunway posted a strong 20% yoy growth in net profit to RM383m in 6M19. This was above the consensus and our expectations. Its property investment and healthcare divisions were the star performers of the group. The bottom line was also boosted by an exceptional gain of RM38m from the disposal of Sunway University to Sunway REIT. We lift our core EPS forecasts by 1-2% to reflect higher property investment earnings and raise our TP to RM2.05, based on the same 20% discount to RNAV. Sunway remains our top large-cap property BUY.

Above Expectations

Net profit of RM383m (+20% yoy) in 6M19 comprises 62% of the full-year consensus forecast of RM620m and 57% of our previous estimate of RM669m. We expect weaker 2H19 earnings with the absence of the exceptional gain on disposal of an investment property in 2Q19. We raise our 2019E net profit to RM704m from RM669m previously, mainly to reflect the one-off gain.

Lower Revenue But Higher Profit

Revenue contracted 13% yoy to RM2.2bn in 6M19 as most divisions saw lower revenues, ie, property development (-9% yoy), property investment (-3% yoy), construction (-28% yoy), trading and manufacturing (-15% yoy), and quarry (-10% yoy). The healthcare segment was the only bright spot with strong revenue growth of 27% yoy in 6M19 due to higher occupancy, more beds added and higher outpatient treatments. Group PBT was up 7% yoy to RM431m in 6M19, mainly driven by its property investment (+11% yoy) and healthcare (+60% yoy) divisions. The property development (-10% yoy), construction (-1% yoy), trading (-52% yoy) and quarry (-46% yoy) segments saw lower PBT. Higher property investment PBT was due to the disposal gain and higher contribution from Sunway Velocity Mall.

High Unbilled Sales and Order Book

Effective property sales of RM735m in 6M19, on track to meet its RM1.3bn target in 2019, were lower than the RM840m achieved in 6M18. We expect high property unbilled sales of RM2.7bn and a construction order book of RM5.8bn to support earnings growth in 2019.

Maintain BUY With a Lifted TP of RM2.05

We raise our RNAV/share estimate to RM2.56 from RM2.47 to reflect lower net debt. Based on the same 20% discount to RNAV, we lift our 12- month TP to RM2.05 from RM1.98. We maintain our BUY call. Key downside risk: prolonged weak property market.

Source: Affin Hwang Research - 28 Aug 2019