INVESTMENT HIGHLIGHTS

• 1QFY17 earnings within expectations

• Weaker earnings from property division

• 1QFY17 new sales at RM142m

• Maintain Neutral with a revised TP of RM3.46

1QFY17 earnings within expectations. Sunway Berhad (SUNWAY) 1QFY17 core net income of RM107.9m was within expectations, at 20% of our and consensus full year estimates.

Weaker earnings from property division. On sequential basis, core net income fell 33%qoq as 1Q earnings were traditionally weaker than 4Q. Besides, lower sales from Sunway Velocity, Sunway Rymba Hills and Sunway Nexis in 1QFY17 also contributed to the weaker sequential earnings. Meanwhile, 1QFY17 core net income climbed by a marginal 3%yoy, mainly due to higher contribution from property investment division which driven by the steady income from its investment properties. Meanwhile, property division recorded weaker contribution due to lower profit recognition from local project and absence of sales from Avant Parc project in Singapore in 1QFY17 as the project was fully sold in 2QFY16. On the other hand, unbilled sales stood at RM1.4b as of March 2017 (decline from unbilled sales of RM1.5b in Dec 2016), providing 1.2years earnings visibility to property development division.

1QFY17 new sales at RM142m. SUNWAY registered new sales of RM142m in 1QFY17, lower than new property sales of RM263m in 1QFY16 and new sales of RM336m in 4QFY16. The new sales in 1QFY16 make up 13% of management and our sales target of RM1.1b. Nevertheless, we maintain our sales target at RM1.1b as SUNWAY will be launching property projects located in South Quay, Kelana Jaya, Penang, Johor, and China with total GDV of RM2b in FY17

Maintain Neutral a revised TP of RM3.46. We maintain our earnings forecast for FY17/18. We revise our TP to RM3.46 (from RM3.27) as we rolled over our Sum-of-Parts valuation to FY18. We maintain our Neutral recommendation on SUNWAY due to its tepid sales outlook.

Source: MIDF Research - 30 May 2017