INVESTMENT HIGHLIGHTS

• 9MFY17 earnings within expectations

• Marginal earnings growth

• 9MFY17 new sales at RM583m

• Maintain Neutral with a revised TP of RM1.75

9MFY17 earnings within expectations. Sunway Berhad (SUNWAY) 9MFY17 core net income of RM398.9m came in within expectations, at 72% of our and consensus full year estimates.

Marginal earnings growth. SUNWAY 9MFY17 earnings grew by a marginal 3%yoy, as higher contribution from property investment and construction divisions cushioned the lower contribution from property development division. Operating profit of property development division fell 38.6%yoy due to lower sales and progress billings from local development projects. Meanwhile, operating profit of property investment division increased 33.3%yoy due to contribution from Sunway Velocity Mall (opened in December 2016) and Sunway Pyramid Hotel. Note that Sunway Pyramid Hotel was reopened progressively in 2017 following a refurbishment exercise. On the other hand, unbilled sales stood at RM991m (decline from unbilled sales of RM1.2b in June 2017), providing less than 1 year earnings visibility to property development division.

9MFY17 new sales at RM583m. SUNWAY recorded new sales of RM207m in 3QFY17, lower than new sales of RM234m in 2QFY17 and new sales of RM251m in 3QFY16. That brought total new sales in 9MFY17 to RM583m, lower than new sales of RM864m in 9MFY16. The total new sales in 9MFY17 is below expectations, making up only 53% of our and management sales target of RM1.1b. Meanwhile, SUNWAY revised its indicative launches for 2017 from RM2b to RM1.1b as SUNWAY held back some launches in Penang and Johor. Hence, we are revising downwards our sales target to RM880m due to change in launches plan.

Maintain Neutral with a revised TP of RM1.75. We are revising our earnings forecast downwards by 2%/2.1% for FY17/18 after inputting lower new property sales target. Our Sum of Parts-derived TP has also been revised downwards to RM1.75 (previously RM1.84) as we widened discount of property division from 10% to 20% in view of the slower property launches. We maintain our Neutral recommendation on SUNWAY due to its unexciting new sales outlook.

Source: MIDF Research - 28 Nov 2017