1Q18 CNP of RM121.9m came in within our/consensus estimates, at 21%/20%. 1Q18 property sales of RM166.0m makes up 14%/13% of our/management’s full-year sales target of RM1.2b/RM1.3b. We deem this as broadly in line as new launches were held back running up to GE-14. Post- election, we expect launches to pick up pace. No dividend proposed as expected. Reiterate MARKET PERFORM with an unchanged SoP-driven Target Price of RM1.60.

In line. 1Q18 CNP of RM121.9m is in line, making up 21%/20% of our/consensus full-year estimates. 1Q18 property sales of RM166.0m makes up 14%/13% of our/management’s full-year sales target of RM1.2b/RM1.3b. We deem this as broadly in line as new launches were held back running up to GE-14. Post-election we expect launches to pick up pace. No dividends proposed in the quarter as expected.

Results highlight. 1Q18 CNP grew 13% YoY underpinned by: (i) revenue growth of 20%, (ii) lower effective tax of 15% (-3ppt), and (iii) decline in minority contributions (-13%). Revenue growth was backed by growth (7%-113%) from all of its divisions. 1Q17 CNP decreased by 27%, QoQ, attributable to lower revenue, which was down by 24%, where it is always seasonally weaker compared to the fourth quarter. Furthermore, its property division saw completion of several projects in 4Q17, 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. We believe management will continue with its planned launches of RM2.0b after the change in government; maintaining a sales target of RM1.3b, close to our target of RM1.2b which we believe to be achievable, should they launch most of their new projects before 3Q18. Property unbilled sales of RM0.9b with 1-year visibility and a vigorous outstanding order-book of RM6.3b provide 2-3 years’ visibility while other divisions are generating decent growth except for quarry.

No changes in earnings. Post results, we made no changes to our FY18-19E earnings estimate.

Maintain MARKET PERFORM, with unchanged Target Price of RM1.60. 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 as follows; (i) applied property RNAV discount of 64% that is close to the sector average of 68%, (ii) premium valuation of 25.0x Fwd. PER to its healthcare division, and (iii) 15.0x FY19E PER to its construction division, which is in line with our big-caps’ range of 15-17x.

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 - 22 May 2018