- We reaffirm our HOLD rating on Sunway Bhd (Sunway) with our fair value unchanged at RM2.70/share, assigning a 25% discount to our sum-of-parts value of RM3.60.share.
- Sunway's 1QFY12 net income came in at RM64mil, which is short of our, and street's expectations covering only 19% and 18% of full-year estimates, respectively. No dividend was declared for the quarter.
- Earnings slid by 35% QoQ on the back of a 15% drop in revenue. This can be explained by slower progress billings, for which there was a 34% drop in property development revenue. However, this was offset by stronger profit recognitions from its Singapore projects.
- Similarly, the construction division was weaker QoQ ' margins down to 3% from 8% ' as there was a strong contribution from its Abu Dhabi projects in the previous quarter, while there was a slight delay in the LRT extension works.
- However, we are sticking to our estimates, with the group currently sitting on a record construction order book of close to RM4bil, taking into account YTD contract wins and healthy unbilled sales of RM2.2bil. Earnings should recover in the coming quarters as construction of its property and infrastructure projects pick up pace.
- To recap, the group has already met its RM1.5bil order book renewal target, with about 27% of the value consisting of in-house jobs, i.e. substructure works for Sunway Velocity.
- Although Sunway is still in the mix for other MRT packages (viaduct and station), we believe WCT and IJM are favourites for the station works and having already won the V4 package, Sunway may find its chances limited for any one of the remaining viaduct packages.
- Sunway is currently trading at quite a steep discount (36%) to its SOP and one of the cheapest stocks in our conglomerate coverage ' trading at a CY12F PE of 9x vis-a-vis its peers of 17x. While the stock looks attractive, there are no near term catalysts.