Period  4Q14/FY14

Actual vs. Expectations  FY14 core net earnings of RM592m came in strong, beating our and consensus expectations by 10% and 18%, respectively. This was primarily due to lower-than-expected interest costs.

 In terms of property sales, SUNWAY achieved total sales of RM1.7b, which was inline with our, and management’s, FY14 target of RM1.65b. However, its external construction orderbook replenishments lagged behind our assumptions of RM1.5b as it only managed to secure c.RM200m worth of external jobs for FY14.

Dividends  Proposed a second interim dividend of 6.0 sen. As for the fullyear, SUNWAY has proposed a total dividend of 11.0 sen visà- vis our estimates of 10.0 sen for FY14, implying a net dividend yield of 3.3%.

Key Results Highlights  YoY, FY14 core earnings improved by 22% despite a marginal revenue growth (+3%). This was mainly due to better operating margins (+2.9ppt) from its property development (+4.5ppt), property investment (+3.4ppt) and construction (+4.7ppt). The construction segment was the most improved division as its core operating profit was up by+193% due to high contribution from its precast operations that completed multiple projects. To top it off, net interest costs had also come down substantially (- 48%) due to renegotiation of interest costs on its financing instruments.

 QoQ, 4Q14 core earnings soared by 38%, underpinned by a strong revenue growth (+30%) coming from its property development and construction divisions, improvements in operating margins (+3.9ppt), better contributions from associate & joint-ventures (+16%). Its property revenue climbed by 179% due to higher billings from Sunway Velocity, Sunway Damansara and Sunway South Quay. Construction revenue (+22%) was driven by higher progress billings for BRT and its building projects i.e. Sunway Velocity Shopping Mall and Afiniti Medini.

Outlook  Management maintains flattish sales of RM1.7b for 2015, on the back of RM2.0b planned launches in 2015. As for its construction division, management are targeting to replenish another RM2.5b total worth of jobs of which RM1.5b are external jobs and RM1.0b internal.

 Its property unbilled sales and outstanding external construction orderbook remains fairly healthy at RM2.5b and RM1.9b, respectively, providing at least 1 – 1.5 years of visibility.

Change to Forecasts  Slight upward revision in FY15E earnings by 11% post housekeeping. We have lowered out net interest assumptions accordingly by 30%.

Rating Maintain OUTPERFORM

Valuation  We reiterate our OUTPERFORM call on SUNWAY with our SoP-based Target Price of RM3.65 which implies FY15E core PER of 10.5x which is inline with its historical average of 10.0x.

 We expect the listing of its construction arm by 1H15 and newsflow will be buoyed by more external construction jobs in FY15, coupled with SUNWAY’s ability to maintain its property sales despite a challenging market.

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

Source: RHB