FY21 CNP of RM328m surpassed expectation due to stronger- than-expected performance from its property and construction arm. Consequently, YTD dividend of 2.5 sen also came above. FY21A sales of RM2.6b came above management’s guidance but is within our RM2.7b target (which we revised up twice during the year). Targeting lower RM1.6b sales this year as headwinds arise. However, we anticipate FY22E earnings to grow 29% YoY with the turnaround of its leisure and hospitality arm, in line with the easing Covid restrictions. Maintain OP on an unchanged SoP-TP of RM2.05.

Surpassed expectations. 4QFY21 CNP of RM125m (refer overleaf for CNP reconciliation) led FY21 CNP to RM328m – above our/consensus estimates at 115%/112% respectively. The outperformance stemmed mainly from the stronger-than-expected contributions from its property development and construction division (through its 54%-owned SUNCON). Both segments exhibited stronger-than-anticipated revenue and margins amidst the absence of lockdowns during the quarter. Note, due to Sunway’s prudent margin recognition over the past two years, margins were recalibrated higher this quarter for projects nearing completion as profit visibility increased. Dividend of 1.5 sen declared brought total YTD dividends to 2.5 sen – also above our 2.0 sen estimate.

Sales excelled. 4QFY21 sales of RM440m led FY21 sales to RM2.61b (backed by RM3.2b launches) – above management’s RM2.2b target but within our RM2.7b target which we revised up twice during the year. The strong sales were mostly attributed to Singapore which contributed c.63% or RM1.65b of sales. Note, Sunway had c.RM2.0b worth of Singapore launches to be sold in 2021 from Parc Central (RM940m GDV; currently 98% sold) and Ki Residence (RM1b GDV; currently 78% sold).

For FY22, Sunway is targeting RM2.2b of sales from RM2.3b launches (comprising 61% in Malaysia, 29% in Singapore, 12% in China). We are more conservative vs. management and target RM1.6b sales in FY22 due to: (i) lower sales available in Singapore on lower launch quantum of RM676m (vs RM2.0b), (ii) fresh cooling measures* in Singapore imposed in Dec 2021, (iii) absence of HOC incentives in Malaysia, (iv) anticipated hike in interest rates, and (v) tougher sales climate in China due to the recent debt crisis in which Sunway has RM276m planned launches in Tianjin this year. Current unbilled sales of RM3.96b (effective RM3.4b) provide c.4x revenue cover.

Highlights. Despite incurring an ICPS dividend payment of RM25.7m for 4QFY21, CNP of RM125m improved 36% QoQ, mainly due to improved PBT contributions from all segments amidst the absence of lockdowns (vs 1.5-month lockdown in 3QFY21). YoY, FY21 CNP came off 9% to RM328m mainly because of its weaker JV contributions (-88%) as FY20 recognised a lumpy net profit of RM182.5m from the completion of Singapore and China projects (Sunway Gardens Tianjin and River Cove, respectively) which only recognise profits upon completion.

Despite the outperformance this quarter, we keep FY22E earnings unchanged as this quarter’s strong margins were due to upward recalibration which would subsequently normalise. The YoY growth in FY22E earnings will mainly comes the turnaround from its leisure and hospitality arm (parked under property investment segment) from its low base in FY21A which was affected by the multiple lockdowns. We introduce FY23E earnings of RM710m (+68% YoY). The stark leap in FY23E earnings would come from the completion of 2 out of 3 of their ongoing Singapore developments (namely Parc Central and Parc Canberra with combined GDV of RM1.5b) which would only recognise profits upon completion (at JV level).

Maintain OP with an unchanged SoP-TP of RM2.05. With its leisure and hospitality segment badly affected during this pandemic, we believe Sunway would be a good proxy for a recovery this year inline with the easing Covid restrictions and our nations high vaccination status. Another positive catalyst in the immediate term is if the Sunway consortium wins the Digital Banking license to be announced by BNM next month.

Source: Kenanga Research - 28 Feb 2022