Journey to Wealth
Sunway - Healthy margins help offset weaker revenue HOLD
- Sunway reported core earnings of RM94.6mil for 3QFY12, bringing its 9MFY12 earnings to RM236.4mil. This is slightly below expectations covering 69%-70% of our and street's estimates, respectively.
- The underperformance was due to slower progress billings during the quarter ' partly explained by the festive season in August ' but we feel the earnings are catching up to our numbers.
- Earnings grew by a healthy 22% QoQ despite having seen revenue slid by 13%. This can be explained by the weaker property sales and construction revenue due to a significant intragroup job this quarter for the latter.
- Nonetheless, strong margins from the property development division ' where property operating profit jumped to RM99mil from RM28mil QoQ ' helped to offset the weaker revenue due to strong margins from Australian and Singapore developments.
- As expected, Sunway has exceeded its new sales target of RM1bil (effective RM800mil) after it had generated RM1.22bil sales or effectively RM1.06bil as of September 2012. This indicates the buying sentiment remains despite uncertain externalities. Take-ups are generally strong for its recent launches ' 60%-80% ' although Sunway's project in Seri Kembangan, i.e. Sunway Eastwood is not too well-received (27% take-up rate).
- We are maintaining our estimates at this juncture, whereby progress billings will pick up in the final quarter. Combined unbilled sales and order book of RM5.6bil will keep the company busy in the near- to mid-term.
- Sunway appears cheap, currently trading at FY13F PE of 8x, supported by clear earnings visibility in the near- to medium-term. But we do not see any strong valuation gap up as the company lacks strong re-rating catalysts.
- We reaffirm our HOLD recommendation on Sunway Bhd with our fair value is unchanged at RM2.60/share, assigning a 25% discount to our sum-of-parts value of RM3.50/share.
Source: AmeSecurities
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