1Q16 CNP of RM102.1m met expectations, at 21% and 19% of our and streets’ full-year estimates, respectively. We deem the results as broadly within streets’ expectation as its 1Qs are generally weaker, and we expect performance to pick up in the 2H16. 1Q16 sales of RM263m are inline with our FY16 estimate of RM1.0b but missed management’s target of RM1.4b. No dividends declared as expected. Maintains MP but with higher TP of RM3.22 (from RM3.20) as we roll forward our valuation base year to FY17E.

Meeting expectations. 1Q16 CNP of RM102.1m was within our estimate and we deem it as broadly within street’s full-year estimates, at 21% and 19%, respectively, as its 1Qs are generally weaker and we expect performance to pick up in 2H16. In terms of sales, SUNWAY managed to record RM263.m for 1Q16 driven by Sunway Iskandar and Singaporean projects, coming inline with our full-year estimate of RM1.0b but fell short of management’s target of RM1.4b. No dividend was declared as expected.

Lower as expected. 1Q16 CNP was down by 23% YoY despite a flattish revenue growth of 1%, mainly due to a significant increase in minority interest contribution as a result of the listing of its construction arm and higher contribution from its joint-venture development projects. While most divisions’ operating profits were down by between 16%-40%, its property division saw an improvement of 39% backed by improvement in operating margin of +2ppt and growth in development revenue of 30%. QoQ, 1Q16 CNP was down by 43% in tandem with its revenue, which declined by 24% due to less project handover in 1Q that are traditionally weaker as compared to 4Q seasonally. Its net gearing came down to 0.40x from 0.50x.

No changes to FY16-17E earnings, its property unbilled sales of RM2.0b while outstanding construction orderbook of RM5.0b provides earnings visibility for 2-3 years.

Maintain MARKET PERFORM call on SUNWAY with a higher SoPdriven TP of RM3.22 (vs. RM3.20 previously) as we roll forward our valuation base year to FY17E. While the stock is trading at FY16- 17E PER of 10.5x-10.4x, under the current market circumstances, we do not see any excitement or re-rating catalyst for SUNWAY, especially when property market sentiment remains weak and challenging. Our applied discount of 61% on its property division is higher than our overall sector’s average discount of 54% due to its high exposure in Johor, but is still below the average discount factor applied to Johor-focused developers of 77%-86%.

Downside risks to our call include: Weaker-than-expected property sales and construction orderbook replenishment, Higherthan- expected sales and administrative costs, Negative real estate policies, and Tighter lending environment.

Source: Kenanga Research - 30 May 2016