FY19 CNP of RM638.2m (+14% YoY) came above our estimate (at 118%) but met consensus expectation (at 99%), boosted by strong property contributions. A 4.5 sen DPS was declared. Our revised earnings forecast for FY20 is RM643m (+8%) and we introduce FY21E earnings of RM703m. Maintain MARKET PERFORM with a higher SoP-derived target price of RM1.75 (from RM1.60).

Above expectations. FY19 CNP of RM638.2m (after stripping out fair value gains of RM79.1m but imputed perpetual sukuk distribution of RM54.5m) beat our estimate (at 118%) but met consensus expectation (at 99%). A DPS of 4.5 sen was declared, taking full-year dividends to 9.1 sen (implying yield of 5.1%).

Results’ highlights. The robust YoY full-year performance was lifted by higher pretax profit contributions from property development (+42%), property investment (+13%), quarry (+23%) and healthcare (+14%). This more than offset the drop in construction (-10%) and trading & manufacturing (-41%). The strong property development performance was mainly attributable to China (which in total contributed pretax profit of RM61m in FY19 versus RM15m in FY18). QoQ, CNP of RM153.5m (-8% QoQ/+1% YoY) came mainly on the back of higher contributions from property development, property investment and quarry.

Outlook. Current unbilled property sales of RM2.1b (effective interest) and construction order-book of RM5.2b will underpin forward earnings. The Group has set a target to achieve new property sales of RM1.4b (versus RM1.1b in FY19) and replenish its construction order-book by RM2.0b in FY20 (versus RM1.8b in FY19).

Earnings revision. We have raised our net profit projection to RM643m (+8%) for FY20 and introduce our earnings forecast of RM703m for FY21. This is primarily to take into consideration stronger contributions from the property development and healthcare divisions.

Maintain MARKET PERFORM. Our revised SoP-driven target price is RM1.75 (see table overleaf), versus RM1.60 previously. We like Sunway for its diversified earnings base, with the resiliency of its REIT and healthcare businesses providing stability to counter the cyclical nature of the property development and construction segments. Downside risk is also supported by FY20E dividend yield of 3.7%.

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

Source: Kenanga Research - 26 Feb 2020