Period

2Q15/1H15

Actual vs. Expectations

SUNWAY’s 1H15 core net profit of RM269.9m came in within expectations, accounting for 45% and 47% of our and consensus full-year estimates, respectively.

In terms of property sales, it registered sales of RM478m, which is still behind our and management’s FY15E sales target of RM1.7b, as most of its launches are skewed towards 2H15.

Dividends

5 sen single tier dividend declared, as expected.

Key Results Highlights

YoY, Its 1H15 core net profit continued to improve by 14% to RM269.9m despite a slide in revenue (- 6%), mainly driven by better EBIT margin of 14% (+3ppt), coupled with lower effective tax rate of 15% vis-à-vis 20% in 1H14. The improvement in EBITDA margin was mainly driven by better margin from its construction segment, as there is a reversal of overelimination of intragroup profits in previous quarters.

QoQ, 2Q15 net profit of RM237.9m was higher by 62%, due to the revaluation gain from its property investment. Stripping off the one-off gain, its core net profit still grew by 3% to RM136.7m despite a slide in revenue (-2%).

Outlook

Its property unbilled sales and outstanding external construction orderbook remains fairly healthy at RM2.3b and RM1.4b, respectively, providing at least 1–1.5 years of visibility.

In 2H15, management still intends to launch RM2.1b worth of property projects of which 71% are from Malaysia and 29% from Singapore.

Change to Forecasts

We adjusted our FY15-16E earnings lower by 5%- 10% to RM578m-RM559m as we have factored in a higher MI arising from its construction division post its listing in July-15.

Rating

Maintain MARKET PERFORM

Valuation

We continue to reiterate MARKET PERFORM on SUNWAY but with a lower Target Price of RM3.39 (previously, RM3.78) that is based on SoP, after factoring in its effective holding stake in SUNCON.

Risks to Our Call

Weaker-than-expected property sales and construction orderbook replenishment.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environments.

Source: Kenanga Research - 28 Aug 2015