1HFY20 CNP of RM66.1m is deemed within expectations despite only accounting for 15% each of our and consensus full-year estimates as we expect 2HFY20 to fare much better. No dividends declared as expected. With no change to earnings estimates, we maintain our Outperform rating with an unchanged SoP-derived TP of RM1.68. We continue to like Sunway for their calculated business approach despite the short-term headwinds.

Well within expectations. The small 2QFY20 core loss of RM0.4m brought 1HFY20 CNP to RM66.1m accounting for 15% each of our and consensus full-year estimates. We deem the results as well within expectations as we expect 2HFY20 to deliver much better profits from: (i) recommencement of business activities post MCO, and (ii) a lump sum PAT recognition worth RM160m from two property projects which will be billed upon completion namely Sunway Gardens, Tianjin and Rivercove Residence, Singapore.

1HFY20 property sales of RM673m is also deemed within our full-year target of RM1.4b (accounting for 48%). Meanwhile, no dividends as expected.

Highlights. QoQ, 2QFY20 dipped to core loss of RM0.4m (from profit of RM66.4m) as all business segments were affected by the longer lockdown period of two months’ vs two weeks in 1QFY20. Segmentalwise, all divisions’ PBTs were down except for manufacturing – thanks to cost saving measures undertaken. 1HFY20 CNP of RM66.1m plunged 76% YoY on lower revenue of 31% mainly attributable to the lockdowns (MCO + CMCO) spanning c.2.5 months.

Management’s new sales targets on the lower end. Sunway has introduced new property sales target of RM1.1b (from RM2.0b) on the back of lower launches of RM2.2b (from RM3.5b). We find the new sales target of RM1.1b overly conservative – implying sales of only RM427m for 2H 2020 – lower than sales of RM673m during 1H 2020 MCO-laden period. This is also on top of (i) the ongoing HOC campaign and (ii) higher launches of RM1.66b in 2H 2020 vs RM0.56b in 1H 2020. Hence, we are keeping our FY20E sales target of RM1.4b for now. Unbilled sales of RM2.5b provides 3x cover.

No change to our earnings estimates post results.

Maintain OP with unchanged SoP-derived TP of RM1.68. While there are multiple short-term headwinds arising from the current Covid- 19 crisis, we believe we should take a longer-term investment stance with Sunway given their calculated business approach which had successfully help them rise in ranks within Corporate Malaysia to cement their brand name and reputation. Therefore, we are positive on the group in the long run given its vision to diversify away from being a pure play developer into growth segments such as healthcare.

Source: Kenanga Research - 26 Aug 2020