Journey to Wealth
Sunway - Property sales target is a challenge HOLD
- We reaffirm our HOLD recommendation on Sunway Bhd (Sunway)with our fair value cut to RM2.70/share (from RM2.85/share previously),assigning a 25% discount to our revised sum-of-parts of RM3.60/share as weassume slower property sales for FY12F and FY13F.
- The key highlight from our meeting is that Sunway has turnedmore cautious on the property sector. We understand YTD sales have been rathersubdued ' Sunway managed to record new sales of only RM100mil (up to February)versus about RM200mil achieved in the corresponding period last year. Sales havebeen largely driven by terraced units in Shah Alam, commercial units at Nexisand Singapore products.
- It seems that the weak sales were largely due to the 70% LTVruling introduced to the market in November last year. This is not a surpriseas Sunway's pricing for its products have always been on the high side and 70%of its planned launches are priced at least RM1mil per unit. Nonetheless, we acknowledge that itsdevelopments are mostly located at favourable locations.
- As a result, the group has deferred its initial 2012launches to 2Q2012. Among the key launches deferred are the commercialproperties in Sunway South Quay ' comprising 31 units of 3-storey shop officespriced at RM6mil & above, Sunway Montana in Desa Melawati and commercialproperties in Penang.
- We therefore believe it may be a challenge for Sunway to meetits RM1.9bil sales target this year. We have cut our new property salesassumption by 20%-25% to RM1bilRM1.5bil for FY12F-FY13F. Consequently, we haveslashed our earnings by 4%-5% for FY12F-FY13F to RM344.2milRM417mil.
- Having said that, the group is currently sitting on ahealthy construction order book and property unbilled sales of RM2.8bil andRM2.2bil, respectively.
- Additionally, we are quite positive on Sunway's chances ofwinning one of the remaining MRT packages, given that it has the cost advantageover its competitors due to its inhouse piling capabilities. We note thatpiling work accounts for 20%-30% of the elevated package or circa RM200mil-RM300mil.Thus, we do not believe it would be an issue for Sunway to meet its order bookrenewal target of RM1.5bil.
- Sunway is currently trading at quite a steep discount(30%) to its SOP and one of the cheapest stocks in our conglomerate coverage 'trading at CY12F PE of 11x vis-avis its peers of 17x. While the stock looksattractive there are no near term catalysts.
Source: AmeSecurities
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