• FY16 earnings broadly within expectations

• Marginally lower full year earnings

• FY16 new sales surpassed target of RM1.1b

• Maintain Neutral with an unchanged TP of RM3.27

FY16 earnings broadly within expectations. Sunway Berhad (SUNWAY) FY16 core net income of RM547.4m was broadly within expectations, at 107% and 106% of our and consensus full year estimates. SUNWAY declared dividend of 7.14sen per share (cash dividend of 4 sen per share and share dividend of 3.14sen per share). That lifts total dividend in FY16 to 12.14sen per share, translating into dividend yield of 3.8%.

Marginally lower full year earnings. On sequential basis, core net income dropped by 15%qoq mainly due to pre-opening expenses incurred for Sunway Velocity Mall and provisions made for the termination of Sunway International Vacation Club and the impairment for BRT Park N’Ride facilities, with combined value of RM40m. Meanwhile, FY16 core net income of RM547.4m fell 7%yoy mainly due to lower earnings contribution from construction division (EBIT -18%yoy) following the listing of Sunway Construction Berhad. Meanwhile, EBIT of property investment division climbed 24%yoy mainly due to higher profit recognition from local projects. Unbilled sales stood at RM1.5b as of Dec 2016 (decline from unbilled sales of RM1.6b in Sept 2016), providing 1.2years earnings visibility to property development division.

FY16 new sales surpassed target of RM1.1b. SUNWAY registered new sales of RM336m in 4QFY16. That brought total new sales in FY16 to RM1.2b, unchanged from its new sales of RM1.2b achieved in FY15. The new sales in FY16 are slightly ahead of management sales target of RM1.1b. Looking ahead, management has set sales target at RM1.1b for FY17 on the back of property launches worth RM2b in FY17. The properties launches in FY17 are located in several regions namely South Quay, Kelana Jaya, Penang, Johor, and China.

Maintain Neutral with an unchanged TP of RM3.27. We maintain our earnings forecast for FY17/18. We are forecasting marginal earnings growth of 1.5% for FY17, which will mainly underpin by its property investment division. We also maintain our TP for Sunway at RM3.27, based on Sum-ofParts valuation. We maintain our Neutral recommendation on SUNWAY due to the lukewarm earnings outlook for SUNWAY.

Source: MIDF Research - 28 Feb 2017