1HFY21 CNP of RM51.8m came within our expectation but below consensus which we believe may have yet to impute in the FMCO impact. Property sales of RM1.64b (effective RM1.56b) came above expectation due to strong demand from Sunway Belfield (KL) and its Singapore projects. We increase FY22E earnings by 2% after adjusting sales target higher to RM2.2b (from RM1.9b). Nonetheless, TP is reduced to RM1.90 (from RM1.95) after adjusting its SoP to cater for SUNCON’s lowered TP. Maintain MP.

Within expectations. 2QFY21 CNP of RM51.8m* brought 1HFY21 CNP to RM110m – within our expectation at 55% but below consensus at 31%. We believe consensus projections may have yet to factor in: (i) the FMCO lockdown impact (starting June 2021) and (ii) ICPS dividend distributions of RM51.3m/annum. The 1.0 sen dividend declared is within expectation.

*We derive our CNP by deducting RM25.7m ICPS dividends declared  to ICPS holders. Note that in its profit disclosure, Sunway does not  adjust its profits distributable to ordinary shareholders for such ICPS  payments. However, we believe such profit adjustment is necessary as  the ICPS dividends come from the ordinary shareholders’ profits pool.  The ICPS dividends will be declared semi-annually in 2Q and 4Q.

1HFY21 gross property sales of RM1.64b (effective RM1.56b) came  above our/management’s FY21 gross target of RM1.9b/RM1.6b. This is mainly due to strong sales from Sunway Belfield (KL) and its three ongoing Singaporean projects: (i) Ki Residence – GDV of RM1b, (ii) Parc Central - GDV of RM910m, and (iii) Parc Canberra – GDV of RM560m. Consequent to the outperformance, we raise FY21 sales target to RM2.2b (effective RM1.9b), in line with managements’ new guidance. Note that the new sales target is backed by unchanged launch target of RM2.8b (effective RM2.3b). Current unbilled sales of RM3.6b (effective RM3.1b) provide c.4x revenue cover.

Highlights. 2QFY21 CNP of RM52m declined 11% QoQ mainly due to the ICPS dividend payment worth RM25.7m. At the operating level where we eliminate the distortion effect of the ICPS, we note that 2QFY21 PBT came off by 9% mainly due to weaker contributions from its construction segment which was impacted by the FMCO. YoY, 1HFY21 CNP improved 126% on better contributions from all its segments (save for property development and investment division) on looser lockdowns measures.

A recovery will only be prominent in FY22. Despite easing of lockdowns starting August 2021, we believe strong earnings recovery will only be prominent when its hospitality division which was severely hit by the pandemic can resume operations. We see such recovery only happening gradually in FY22 when the international/interstate borders reopen and people start getting comfortable living with Covid-19.

Revise FY22E earnings higher by 2% after factoring for the higher sales target. Maintain MP with lower SoP-TP of RM1.90 (from RM1.95) after adjusting for SUNCON’s lowered TP.

Source: Kenanga Research - 25 Aug 2021