FY17 CNP of RM566.3m came in above our, but within consensus, estimate, at 108%/100%. Property sales of RM1.2b came in higher compared to our and management target of RM1.1b. 3.0sen dividend was declared, bringing full-year DPS to 6.0 sen inline with our 5.9 sen forecast. Raised FY18E CNP by 5% to RM572.0m, introduce FY19E CNP of RM607.0m. Reiterate MARKET PERFORM with an unchanged SoP-driven Target Price of RM1.75.

Above our estimate but within consensus. FY17 CNP of RM566.3m makes up 108%/100% of our/consensus full-year estimates. Negative variances are mainly from the differential in taxes where we assumed a higher effective tax rate and better development margins. FY17 property sales of RM1.2b came in higher compared to our and management’s full-year target of RM1.1b. A 3 sen dividend was declared, bringing total dividends for the year to 6.0 sen inline with our expectation of 5.9 sen.

Results highlight. FY17 CNP grew 5% YoY underpinned by; (i) revenue growth of 14%, (ii) reduction in net financing cost (-62%),and (iii) decline in minority contributions (-30%). Revenue growth was backed by the growth of 16%-25% from all of its divisions except for property development, and quarry. 4Q17 CNP grew 11%, QoQ, due to significant improvements in pre-tax profits from its property development and construction divisions, which grew 32%-197%. Its property development division saw completion of several projects, i.e. Sunway Velocity V-Residence 2 and Sunway Geo Retail Shops and Flexi Suites Phase 2, while its construction division registered better progressive billings from on-going projects.

Outlook. Moving ahead, management have planned launches of RM2.0b, with a new sales target of RM1.3b which is pretty close to our target of RM1.2b. Property unbilled sales of RM0.9b with 1-year visibility, a vigorous outstanding order-book of RM6.7b provides 2-3 years’ visibility while other divisions are generating decent growth except for quarry.

A raise for FY18E. Post results, we raised our FY18E CNP by 5% to RM572.0m, and introduce our FY19E CNP of RM607.0m after we fine- tuned our development margin assumptions.

Maintain MARKET PERFORM, with unchanged Target Price of RM1.75. We believe SUNWAY will continue to deliver decent profitability despite a soft property market, backed by its other divisions, i.e. construction, property investment, trading and manufacturing.

Currently, we are comfortable with our valuations:- (i) the applied property RNAV discount of 56% is well within the sector average of 60%, (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 inline 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 - 01 Mar 2018