News

Yesterday, SUNWAY announced in their email flash note that they are slashing their sale target by a 35% to RM1.1b from RM1.7b previously, as they decided to scale down their initial launch target of RM2.0b to only RM1.0b for FY15.

Comments

We were not entirely surprised by SUNWAY’s move in holding back their initial planned launches of RM2.0b to RM1.0b under current market circumstances as their move is largely similar with other developers in town. Subsequently, the move in holding back launches has also caused SUNWAY to lower their sales target by 35% to RM1.1b. To recap, SUNWAY’s 1H15 registered sales of RM478m only made up 28% of management’s and our initial sales target of RM1.7b.

While the move in holding back launches compel us to lower our FY15-16E earnings, we are positive on SUNWAY’s move for the longer term, as it will give them better positioning in the future given that limited property launches in the market will eventually create pent-up demand.

Outlook

Its property unbilled sales remain fairly healthy at c.RM2.3b, providing at least 1–1.5 years of visibility.

We believe that SUNWAY will benefit from construction contract flows in early 2016, such as the MRT2 and LRT3 projects given their strong track record in these infrastructure projects.

Forecast

Following SUNWAY’s move in revising its launches, we have also lowered our FY15-16E sales from RM1.7b to RM1.0b, which led to lower FY15-16E core net profits by 1% and 12% to RM570m and RM493m, respectively.

Rating

Maintain MARKET PERFORM

Valuation

We are maintaining our MARKET PERFORM call on SUNWAY as we believe that they will ride on the construction contract flow in early 2016, as SUNCON is set to benefit from MRT2 and LRT3. However, we lowered our SoP-driven Target Price to RM3.27 (previously, RM3.39) as we further widened our property discount from 50% to 54% after SUNWAY scaled down its launches. Our applied discount of 54% to its property division is inline with our overall sector average discount.

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 - 22 Oct 2015