9M17 CNP of RM398.9m is in line, making up 76%/71% of our/street’s full-year estimates. 9M17 property sales of RM583.0m are deemed to be in line as we are banking on a strong 4Q17 performance. No dividend declared as expected. No changes to FY17/18E earnings. Upgrade to OUTPERFORM (previously, MARKET PERFORM) with an unchanged SoP-driven Target Price of RM1.82.

In line. 9M17 CNP of RM398.9m is broadly in line, making up 76% and 71% of our and street’s full-year estimates. While its 9M17 property sales of RM583.0m appears sluggish compared to our and management’s full-year target of RM1.1b, we deem it is still on-track, banking on a strong 4Q17 where bulk of its new launches of RM1.1b are skewed towards late 3Q17. Furthermore, most of its launched projects have achieved estimated take up rates of 50%. No dividend declared as expected.

Results highlight. 9M17 CNP grew 6% YoY underpinned: (i) revenue growth of 9%, (ii) reduction in net financing cost (-7%), (iii) decline in minority contributions by 24%, (iv) improvements in associate/joint controlled entity (JCEs) contributions (+7%), and (v) lower effective tax rate of 15% (-1ppt). QoQ, 3Q17 CNP grew 8% due to similar reasons mentioned above i.e. (i) lower net financing cost (-66%), (ii) lower minority interest (-53%), and (iii) better contribution from associates/JCEs (+25%). Positively, its net gearing also came down to 0.37x vis-à-vis 0.46x back in 2Q17 due to proceeds from the conversion of ESOS and lower net borrowings.

Outlook. Moving ahead, we are confident that SUNWAY would be able to deliver our forecast earnings and targeted sales of RM1.1b for the year. This is premised on its property unbilled sales of RM0.9b with 1.5- year visibility, a vigorous outstanding order-book of RM6.8b that provides 2-3 year visibility and other divisions that have been generating decent growth. As for its property sales, we are expecting a strong performance in 4Q17 given that most of the new local launches have achieved take up rate of 50%, coupled with an unsold GDV of RM400.0m.

Earnings unchanged. Post results, there are no changes to our FY17- 18E CNP of RM522.0-543.0m.

Upgrade to OUTPERFORM (previously, MARKET PERFORM) as share price has retraced in line with weak market sentiment and overreactions to negative news flow, while we bank on a strong sales performance in 4Q17. Our SoP-driven TP of RM1.82 remains unchanged. Furthermore, we remain comfortable with our valuations as follows; (i)applied property RNAV discount is 52% which is steeper than big-cap developers’ average of 45%, (ii) already pegging premium valuations of 27.0x Fwd PER to its healthcare division, and (iii) 16.0x FY18E PER to its construction division which is in line with our big-cap range of 16-18x.

Risks include: Weaker-than-expected property sales and construction replenishment, higher-than-expected administrative costs, negative real estate policies, and tighter lending environment.

Source: Kenanga Research - 28 Nov 2017