Yesterday, we attended SUNWAY’s briefing hosted by its MD Sarena Cheah and came back feeling neutral on the overall property market outlook as the current condition has not seen much improvement. SUNWAY rescheduled its RM800.0m worth of planned launches to FY17 and lowered its sales target to RM1.1b from RM1.4b. Hence, we also lowered our FY17E core earnings by 6% with lower sales estimates of RM1.0b (previously, RM1.4b). Maintain MARKET PERFORM with an unchanged SoPdriven Target Price of RM3.23.

Briefing update. Sarena kick started the briefing with a quick recap on SUNWAY’s recent land banking activities followed with an update on its 1H16 launches, progress of its existing projects, and lastly its launches and sales target for FY16. The main highlight of the briefing was the update of its planned launches and sales target for FY16 which seen a downward revision.

Reschedules its planned launches. In view of a challenging market, the group has decided to reschedule some of its planned launches i.e. Sunway Geo Residence 3, Sunway Iskandar residential projects and also to keep Velocity Offices as investment properties bringing down its planned launches to only RM800.0m from RM1.6b previously, which also scaled down its sales target of RM1.4b to RM1.1b. The rationale behind the rescheduling of the launches is to further enhancing its existing projects by adding in more amenities i.e. walk ways, link bridges, public transports, big boxes (warehouse like retails), petrol stations and etc. in its existing projects in Bandar Sunway and Sunway Iskandar, with the aim of establishing a strong branding for the future.

Lowering FY17 estimates. Post briefing, we adjusted our FY17E core earnings lower by 6% to RM490.0m as we lowered our FY16 sales assumptions to RM1.0b from RM1.4b, following SUNWAY’s revision in sales target from RM1.4b to RM1.1b due to the rescheduling of its planned launches. To recap, we recently upgraded our FY16 sales estimates to RM1.4b premised on its strong 1H16 sales performance, as we did not anticipate any revision in their planned launches for FY16.

Outlook. Nonetheless, we remain confident with SUNWAY’s ability in delivering a sturdy performance for the year premised on its strong unbilled sales of RM2.0b with 2-year visibility, a robust outstanding order book of RM4.9b that provides 2-3 year visibility and its other divisions that has been generating decent growth over the years.

MARKET PERFORM. No changes to our MARKET PERFORM recommendation and SoP-driven Target Price of RM3.23, while maintaining our cautious view on the property market as we have yet to see much improvement in the market, especially bank loan approvals.

Downside risks to our call include: Weaker-than-expected property sales and construction order book replenishment, Higherthan-expected sales and administrative costs, negative real estate policies, and tighter lending environment.

Source: Kenanga Research - 14 Oct 2016