9MFY20 CNP of RM142.7m came below expectations due to  weaker-than-expected performance at its hospitality and  leisure unit. No dividends declared as expected. With the  recent vaccine breakthrough, we anticipate Sunway to  embark on a recovery trajectory moving forward. Hence,  maintain Outperform but with a lower SoP-derived TP of  RM1.54 (from RM1.57) after updating for lower Sunreit and  property investment valuations.

Below expectations. While 3QFY20 CNP of RM76.7m rebounded QoQ, lifting 9MFY20 CNP to RM142.7m; it was still not up to our/consensus expectations – only accounting for 34%/37% of full-year estimates. The disappointment mainly stemmed from its property investment performance, bogged down by its hospitality and leisure unit i.e. hotels and theme parks which did not recover as strongly-as- expected despite interstate travel and local tourism being allowed and encouraged in 3QFY20. Meanwhile, no dividends as expected.

9MFY20 effective property sales of RM809m which would have been deemed to be within our full-year target of RM1.4b may now fall short as management has deferred the RM1.66b effective launches planned in 4QFY20 slightly later to Dec 2020 (from Oct 2020) – leaving a shorter window to close sales. In view of the launch deferment, we lower our FY20E sales to RM1.2b, closer to management’s RM1.1b target. Current unbilled sales of RM2.5b provide 3x cover.

Highlights. QoQ, 3QFY20 CNP of RM77m rebounded strongly from a CNL position of RM0.4m as all divisions emerged from a MCO-laden quarter registering stronger revenue and PBT (except for property development which dipped marginally). 9MFY20 CNP of RM142.7m plunged 68% YoY on lower revenue by 25% mainly attributable to the lockdowns (MCO + CMCO) spanning c.2.5 months.

Revise FY20E/FY21E earnings downwards by 14%/17% after factoring for weaker property investment earnings and the marginal revision of FY20 sales target. Note that we are anticipating a lump sum PAT recognition worth RM160m in 4QFY20 from two property projects which will be billed upon completion namely Sunway Gardens, Tianjin and Rivercove Residence, Singapore.

Maintain OP with marginally lower SoP-derived TP of RM1.54 (from RM1.57) after updating for lower SUNREIT and property investment valuations. While the short-term headwinds from the pandemic still persists, we take a longer-term investment stance with Sunway given their calculated business approach which had  successfully help themrise in ranks within Corporate Malaysia to cement their brand name and reputation. Therefore, we remain positive on the group given its vision to diversify away from property development into growth segments i.e. healthcare. Also, we believe the recent vaccine breakthrough would kick start a recovery for the group, paving the way for a multi-year growth trajectory.

Source: Kenanga Research - 30 Nov 2020