Sunway sustained the earnings momentum with 22% yoy growth in net profit to RM566m in 9M19. This was above market and our expectations. Most divisions saw better performance except its construction and trading arms. The bottom line was also boosted by an exceptional gain of RM38m from the disposal of Sunway University to Sunway REIT and fair value gain of RM43.6m for Sunway REIT’s assets. Sunway remains our top large-cap property BUY.

Above Expectations

Net profit of RM566m (+22% yoy) in 9M19 comprises 91% of the full-year consensus forecast of RM622m and 80% of our previous estimate of RM704m. We were surprised by the low effective tax rate of 5.7% in 9M19. We raise our 2019E net profit to RM752m from RM704m previously to reflect a reduction in effective tax rate to 10% from 16% previously.

Lower Revenue But Higher Profit

Revenue contracted 13% yoy to RM3.4bn in 9M19 as most divisions saw lower revenues, ie, property development (-21% yoy), property investment (- 14% yoy), construction (-30% yoy), and trading and manufacturing (-16% yoy). The quarry (+29% yoy) and healthcare (+29% yoy) segments saw higher revenue. Group PBT was up 10% yoy to RM654m in 9M19, mainly driven by its property development (+6% yoy), property investment (+15% yoy) and healthcare (+35% yoy) divisions. The construction (-6% yoy), trading (-38% yoy) and quarry (-13% yoy) segments saw lower PBT. Higher property investment PBT was mainly due to the Sunway University assets disposal gain and fair value gain for Sunway REIT.

High Unbilled Sales and Order Book

Effective property sales of RM720m in 9M19, on track to meet its RM1bn target in 2019, were lower than the RM1.4m achieved in 9M18. We expect high property unbilled sales of RM2.1bn and a construction order book of RM5.6bn to support earnings growth in 4Q19 and 2020.

Maintain BUY With TP of RM2.05

We reiterate our BUY call on Sunway with 12-month target price of RM2.05, based on 20% discount to RNAV. Good prospects to embark on strategic acquisitions of property investment assets, such as the recent UK student accommodation acquisitions, to expand its property investment income. The expansion of its hospital operations will also generate construction earnings in the immediate term and boost long-term healthcare earnings. Key downside risk: prolonged weak property market.

Source: Affin Hwang Research - 22 Nov 2019