Period  3Q13 / 9M13

Actual vs.Expectations At 73% of our full-year FY13 estimates, the 9M13 net profit of RM354m came in within our estimates but above consensus estimates at 82%. 9M13 sales of RM1.1b are on schedule to meeting our and the company’s FY13E sales target of RM1.3b.

Dividends  None as expected.

Key Results Highlights YoY, 9M13 core earnings increased by 37.6% mainly buoyed by a 19.7% YoY revenue growth. The improvement was mainly due to the stronger performance from the property development and construction segment, which the revenues and core earnings for both YoY jumped by 42.7%-30.1% and 50.2%-20.2%, respectively. The better results from property development were attributable to the increasing progress billings from on-going projects such as Sunway South Quay, Sunway Velocity and Sunway Nexis while the stronger construction results were due to stronger progress billings of the local infrastructure, building projects and precast concrete products. Despite the Pretax margin compressed by 1.6ppts, the core earnings margin improved by 1.3ppt due (i) the fall in other income by 33% was mostly mitigated by the 26% drop in finance cost and (ii) the lower tax bracket of 16.6% vs 19.3% for 9M12.

 Despite a 4.6% decline in revenue, core earnings were up by 12.3% QoQ. The revenue of property development division was marginally lower by 9.3% QoQ due to higher sales of Sunway Vivaldi in 2Q13. However, its core earnings QoQ were up by 12.3% as we saw core margin increased 10.9ppt due to the handing over of two completed property projects which helped softened QoQ weaknesses in other divisions.

Outlook  We remain positive on the company given its healthy unbilled sales of RM2.2b (effective RM1.8b) which provides up to 2 years earnings visibility. Meanwhile, we are looking forward to more new launches of on-going projects such as Sunway South Quay, Sunway Velocity and Sunway Nexis and new projects that include the Medini land next year.

Change to Forecasts Maintaining earnings forecast of RM487m-RM495m for FY13-14E.

Rating Maintain OUTPERFORM In line with our sector call. Notably, the stock is trading near trough valuations at FY13-14E PER of 10.4x-9.2x and Fwd PBV of 1.0x-0.9x.

Valuation  Maintain TP of RM3.08. Our TP is based on a 25% discount to our FD RNAV of RM3.36.

Risks  Unable to meet sales targets. Sector risks, including negative policies.

Source: Kenanga