Period  4Q13 / FY13

Actual vs. Expectations Sunway Berhad (“SUNWAY”) registered core net earnings of RM482m for FY13, which we deem broadly inline within our expectations at a fulfilment rate of 106%, but well exceeded street consensus’ estimates by 17%.

 Sales for the year of RM1.8b was also well within our assumptions.

Dividends  A second interim single tier dividend of 5 sen was proposed, as expected. For the year, SUNWAY had announced a total net dividend of 10 sen (3.7%yield), which is inline with our estimates.

Key Results Highlights For the full-year, SUNWAY reported net profit of RM1.5b which included RM1.0b of non-cash gains where the bulk was coming from the revaluation gain on the remeasurement of the Group's remaining equity interest in SRM, the shareholding at Sunway REIT and also the consolidation of Sunway REIT. Excluding this item, FY13 core earnings improved by 38% to RM482.3m on the back of revenue growth of 17%. The commendable set of results are mainly driven by better revenue contribution from its major divisions i.e. property development (+26%), property investment (+33%), construction (+26%), trading & manufacturing (+10%) and quarry (+2%). While property PATAMI margins were relatively flat (-0.8ppt), segments like construction, quarry and ‘others’ (health care and building materials) saw improved margins, which boosted group PATAMI margins by 1.2ppt.

 QoQ, 4Q13 core earnings of RM157m also saw an improvement of 38% despite a slight dip in its core margin (-1.4ppt) which was cushioned by the 44% growth in revenue. Core earnings were largely driven by growth from: (i) property revenue (+60%) due to higher billings, particularly from Singapore projects, (ii) construction topline improvement of 16% while core PATAMI expanded by 0.7ppt, and (iii) seasonally better contributions from property investments which core PATAMI rose by 89%.

Outlook  For FY14, management would be targeting to launch another RM2.3b worth of property development projects with a sales target of RM1.8b. We think that the target is still highly realistic. Reason being that about 82% of its upcoming development products are being priced below RM1.0m/unit, which is more palatable for today’s demand profile, which emphasis is on ‘affordability’. Unbilled sales of RM2.4b provide 2-years visibility.

 The group targets FY14 orderbook replenishment of RM2.5b (30% internal and 70% external jobs). Judging from SUNWAY’s orderbook replenishment of RM2.2b back in 2013, we believe that the management’s orderbook replenishment target remains achievable. Nonetheless, as a conservative approach, we only factor in an external orderbook replenishment assumption of RM1.5b. Its outstanding external orderbook currently stands at RM3.1b, which is sufficient for two years churn.

Change to Forecasts  No changes in earnings estimate at this juncture.

Rating Maintain OUTPERFORM

 We reiterate our OP call on SUNWAY for its synergistic business, which enriches its core driver as an integrated township developer. The stock is currently trading at close to trough valuations of FY14-15E PER of 11.4x-10.7x and Fwd PBV of 0.9x.

Valuation  Maining at3.0n dt o our FD RNAV of RM3.36.

Risks to Our Call  Failure to meet sales targets or replenish landbank. Sector risks, including overly negative policies.

Source: Kenanga