Sunway’s net profit grew 19% yoy to RM767m in 2019. This was above market expectation but in line with ours. Core net profit of RM694m (+21% yoy) in 2019 was also within our expectation. Most divisions saw better performance except its construction and trading arms. The bottom line was 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. We cut our EPS by 1-6% in 2020-21E to reflect lower SunCon earnings and slower property sales. Maintain BUY call with lower TP of RM1.92, based on 20% discount to RNAV.

Within Our Expectation

Net profit of RM767m (+19% yoy) in 2019 was 19% above consensus forecast of RM646m but close to our estimate of RM752m. There were unrealised forex gain of RM25m and net exceptional gain of RM47m (mainly due to fair value gain for its Sunway REIT associate and investment property disposal gain), which boosted the headline profit.

Lower Revenue But Higher Profit

Revenue contracted by 12% yoy to RM4.78bn in 2019 as most divisions saw lower revenues, ie, property development (-12% yoy), property investment (-1% yoy), construction (-31% yoy), and trading and manufacturing (-13% yoy). The quarry (+56% yoy) and healthcare (+27% yoy) segments saw higher revenue. Group PBT was up 9% yoy to RM914m in 2019, mainly driven by its property development (+42% yoy), property investment (+13% yoy), quarry (+23% yoy) and healthcare (+14% yoy) divisions. The construction (-10% yoy) and trading (-41% yoy) segments saw lower PBT. Higher property investment PBT was mainly due to the disposal gain from Sunway University assets and fair value gain for Sunway REIT.

High Unbilled Sales and Order Book

Effective property sales of RM1.1bn in 2019 exceeded its RM1bn target. But this was lower than the RM1.6m achieved in 2018. We expect its high property unbilled sales of RM2.1bn and a construction order book of RM5.2bn to support earnings growth in 2020. There is also lumpy PBT of RM160m for its Singapore and China property sales to be recognised on completion in 2020.

Maintain BUY With Lower TP of RM1.92

We reiterate our BUY call on Sunway. We revised down our fully-diluted RNAV/share to RM2.40 from RM2.47 to reflect higher net debt as at end- 2019. Based on the same 20% discount to RNAV, we trim our 12-month TP to RM1.92 from RM2.05.

Source: Affin Hwang Research - 26 Feb 2020