• Sunway saw a strong 1.8-fold qoq jump in core earnings to RM250m in 4Q20, boosted by lumpy Singapore and China property earnings
• Core earnings contracted 37% yoy to RM402m in 2020 due to the adverse impact of the Covid-19 pandemic and movement restrictions. The results were above market and our expectations
• We cut core EPS by 8-24% in 2021-22E to reflect lower property earnings, following the higher overseas earnings recognition in 2020. Maintain our BUY call with a higher TP of RM1.92, based on 20% discount to RNAV

Above Expectations

Sunway reported a core net profit of RM402m (-37% yoy) in 2020, which was above consensus and our forecasts of RM341-363m. Net exceptional loss of RM42m reduced net profit to RM360m (-49% yoy). Revenue fell 20% yoy to RM3.83bn in 2020 with lower revenue reported for all divisions except healthcare (+6% yoy), due to higher contributions from new hospitals. PBT fell 41% yoy to RM509m with all divisions reporting weaker performance and profits margins, except its property development arm. The lumpy recognition of Singapore and China property project earnings on a completion basis boosted the group’s property development EBIT (+29% yoy) in 2020. But Sunway posted lower operating profit for its property investment (-89% yoy), mainly due to impairments, construction (-35% yoy) and healthcare (-46% yoy) divisions in 2020.

Reasonable Property Sales

Sunway achieved property sales of RM1.3bn (effectively sales of RM1.1m) in 2020 compared to RM1.55bn (effective sales of RM1.1bn) in 2019. The sales exceeded its revised 2020 target of RM1.1bn. About 56% of sales were from its Singapore and China projects, which are seeing a faster recovery in demand as pandemic lockdowns were lifted in those countries. High unbilled sales of RM2.4bn and construction order book of RM5.1bn should support earnings in 2022-23E. Sunway is targeting higher new launches of RM2.8bn and sales of RM1.6bn in 2021 on expectations of a pick-up in property demand as the pandemic eases.

Maintain Our BUY Call

We reiterate our BUY call on Sunway as its hospitality and private healthcare businesses will benefit from the easing lockdowns and pandemic concerns. We lift our RNAV/share estimate to RM2.40 from RM2.25 previously to reflect the cash proceeds from the irredeemable convertible preference shares (ICPS) issuance. Applying the same 20% discount to RNAV, we lift our TP to RM1.92 from RM1.80 previously. Key downside risks are weak property sales and new contract wins.

Source: Affin Hwang Research - 1 Apr 2021