INVESTMENT HIGHLIGHTS

• 9MFY18 earnings slightly below expectations

• Marginally higher earnings in 9MFY18

• New sales target at RM1.7b (previously RM1.8b)

• Earnings forecast revised downwards

• Maintain Neutral with a revised TP of RM1.50

9MFY18 earnings slightly below expectations. Sunway Berhad (SUNWAY) 9MFY18 core net income of RM407.5m came in slightly below expectations, making up 69% of our and consensus full year estimates. The negative deviation could be attributed to the slower-than-expected progress billing from local property projects.

Marginally higher earnings in 9MFY18. SUNWAY 3QFY18 core net income inched up by a marginal 0.2%yoy to RM145.3m, bringing cumulative earnings in 9MFY18 to RM407.5m (+4.2%yoy). The marginally higher earnings in 9MFY18 were mainly driven by higher contribution from property investment and construction divisions which mitigated lower earnings from property development division. Operating profit of property investment division climbed 8.3%yoy due to additional contribution from new investment properties (Sunway Velocity Hotel and Sunway Geo). Meanwhile, operating profit of property development division eased by 17.7%yoy, mainly due to lower progress billings from local development projects. Besides, adoption of MFRS 15 has also dragged earnings of the property development division as SUNWAY can only recognise the development profits from projects in Singapore and China upon its completion.

New sales target at RM1.7b (previously RM1.8b). SUNWAY achieved new sales of RM760m in 3QFY18, bringing 9MFY18 cumulative total new sales to RM1.6b. Oversea projects in Singapore and China contributed 67% of new sales while the remaining 33% contributed by local projects. Meanwhile, new sales momentum in 4QFY18 is expected to be weaker as SUNWAY set its new sales target at RM1.7b for FY18.The new sales target is below our expectation, as it is lower than our new sales target of RM1.8b. As such, we are revising downwards our new sales target to RM1.7b, to be in line with management sales target. Meanwhile, unbilled sales climbed to RM2.1b in 3QFY18 from RM1.5b in 2QFY18, providing 2 years earnings visibility to property development division.

Maintain Neutral with a revised TP of RM1.50. We revise downwards our earnings forecast for FY18/19 by 5.1%/1.6% to factor in the lower new sales assumption and lower progress billing of local development projects. Subsequently, we revise our TP to RM1.50 from RM1.60 as we widen discount to 25% from 20% for property division in our Sum-of-Parts valuation. We maintain our Neutral call on SUNWAY as we see its new sales outlook and earnings outlook to be tepid.

Source: MIDF Research - 22 Nov 2018