INVESTMENT HIGHLIGHTS

• 1HFY19 earnings were in-line

• Cumulative CNI increased by 15.0%yoy to RM301.6m

• New sales of RM472m recorded in 2QFY19

• Maintain Neutral with an unchanged TP of RM1.55

1HFY19 earnings were in-line. Sunway Berhad (SUNWAY) 1HFY19 core net income (CNI) of RM301.6m came in within ours and consensus’ expectations at 48% and 49% of full year estimates respectively. We have excluded the disposal gain of Sunway University assets amounting to RM37.7m and revaluation gains from our CNI. An interim dividend of 3.0 sen cash dividend and share dividend distribution of one treasury share for every 100 existing ordinary shares held (equivalent to c.1.57 sen) was announced.

Cumulative CNI increased by 15.0%yoy to RM301.6m due to better margins. Revenue, however, fell by 15.2%yoy to RM2.2b due to weaker performance of the hospitality segment and loss of income from its education assets post-disposal. The better earnings for the period can be attribute to improvement in pre-tax profit (PBT) for property investment (+11%), healthcare (+60%) and others (+167%) due to higher net interest income. Meanwhile, property development PBT declined by 9.6% to RM70.1m on revenue that fell by 8.8% to RM201.4m. This is mainly due to lower progress billings from local development projects as well as the adoption of MFRS 15, which only allows the group to recognise its Singapore and China projects upon completion. Progressive profits from these two projects totalled at RM66.3m as of June 2019.

Earnings advanced by 17.8%yoy to RM165.2m in 2QFY19 driven by higher PBT in property investment (+16.9%), healthcare (+75.7%) and others (+141.5%). On the other hand, property development division PBT fell by 25.6%yoy to RM37.3m due to the adoption of MFRS 15 as the previous corresponding quarter had benefitted from foreign exchange gains from the group’s Singapore projects. Nonetheless, property revenue for the quarter jumped 28%yoy to RM113.6m due to higher sales and progress billings from local projects such as Velocity TWO, Avila and South Quay.

New sales of RM472m recorded in 2QFY19 compared to new sales of RM263m in 1QFY19. Cumulative new sales of RM735m are within expectations as it makes up 56.5% of management new sales target of RM1.3b for FY19. Meanwhile, unbilled sales increased to RM2.7b in 2QFY19 from RM2.2b in 1QFY19, providing 3 years earnings visibility to the property development division.

Source: MIDF Research - 28 Aug 2019