Period

4Q15/FY15

Actual vs. Expectations

SUNWAY’s FY15 core net profit of RM594.2m was within expectations, accounting for 105% and 104% of our and streets full-year estimates, respectively.

In terms of property sales, it registered sales of RM1.2b, higher than our and management’s FY15 sales target of RM1.0b and RM1.1b, respectively. The stronger-thanexpected sales number acheived was driven by the strong sales registered in Velocity and China. However, we do note that management did scale down its sales target back in Oct-15, from its initial target of RM1.7b to RM1.1b.

Dividends

2nd interim dividend of 6.0sen declared, bringing its full-year cash dividend announced to 37.0sen, higher compared to our full-year expectation of 35.6sen.

Key Results Highlights

YoY, SUNWAY still managed to register a marginal growth of 0.4% on its CNP despite an 8% decrease in revenue. This is mainly due to the decrease in tax (-12%) and minorities interest (-14%) contribution. Operationally, its property division (-27%), property investment (-18%), and trading (-17%) division’s operating profits declined, while construction (+19%) and quarry division (+10%) saw improvement in operating profit. The lower operating profit of RM213.5m registered by its property development division was mainly due to compression in margins to 17% (-7ppt) driven by lower margin projects both locally and in Singapore.

QoQ, its 3Q15 CNP saw significant improvement (+22%), underpinned by strong revenue growth of 47%. The strong growth in revenue was mainly driven by its property division, which saw 55% growth in development revenue underpinned by better progressive billings from its on-going projects, i.e. Sunway South Quay, Sunway Citrine and also Singapore.

Outlook

Despite challenging market conditions, SUNWAY has set a higher sales target of RM1.4b for FY16 (refer overleaf)

Nonetheless, we are still keeping our conservative FY16E sales target of RM1.0b, as we remain cautious with the property market.

Change to Forecasts

No changes to our FY16E CNP, while we introduce our FY17E CNP on the back our FY17 sales estimates of RM1.2b.

Rating

Maintain MARKET PERFORM

Valuation

Maintain MARKET PERFORM call on SUNWAY with an unchanged SoP-driven TP of RM3.20. While the stock is trading at FY16E PER of 10. 4x, under the current market circumstances, we do not see any re-rating catalyst for SUNWAY, especially when property market sentiment remains weak and challenging. Our applied discount of 54% on its property division is close to our overall sector’s average discount of 53%.

Risks

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 - 29 Feb 2016