Sunway’s  3Q13  results  beat  our  expectations.  Sequential  growth  was mainly driven by better margins from property development. 9M13 sales hit  MYR1.1bn,  which  will likely surpass management’s MYR1.3bn  2013target.  Given the  current negative sentiment arising from the  impact of regulatory  measures  and  the  ongoing  concerns  on  further  stake disposal by GIC, we lower our  FV to MYR3.30 (from MYR3.55).

• Above  expectations.  Sunway’s  3Q13  results  came  in  above  our expectation,  but  in  line  with  market  estimates.  Headline  net  profit  was dragged down by a non-operational item – a MYR39.7m ESOS fair value expense, which does  not have any cash flow impact.  Q-o-q  growth was mainly  driven  by  the  strong  margin  from  its  property  development division, while construction and property investment saw slower growth on  write-back  of  provisions,  and lower hotel occupancy  and theme park visitor numbers during July’s fasting month.
• 9M13  MYR1.1bn sales.  9M13  new  property sales  reached MYR1.1bn, from  MYR606m  in  1H13.  Full-year  sales  could  surpass  management’s MYR1.3bn  target.  Sunway  GEO  Residences  (GDV  MYR480m),  which has achieved a  booking rate  of 85%;  Velocity serviced apartments (70% sold);  and  Novena  medical  suites/retail  units  (45%/80%  sold)  are expected to contribute to 4Q13 sales. Despite the challenging outlook for the Iskandar  Malaysia property market, Sunway may still preview  Phase 1  of  Sunway  Iskandar  Medini  serviced  apartments  and  office  (GDV MYR300m)  in  December.  This  will  be  a  good  indication  of  local  and foreign buyers’ sentiment on the physical market   after the  2014 Budget announcement.
• Forecasts.  In view of the  stronger-than-expected margins, we raise our FY13  earnings  forecast  marginally  by  5%.  Earnings  will  be  backed  by MYR2.2bn  in  unbilled  sales  (same  as  last  quarter’s)  and  a  MYR3.7bn construction orderbook.
• Reduce FV.  Although we maintain our BUY call,  given  the unchanged fundamentals,  we  lower  our  FV  slightly  to  MYR3.30  (from  MYR3.55) based  on  a  larger  discount  to  RNAV  of  30%  (from  25%)  to  reflect  the current  negative  sentiment  arising  from  the  impact  of  regulatory measures, and the ongoing concerns on further stake disposal by GIC.

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SWOT Analysis

Company Profile
Sunway is a well-known developer in the Klang Valley. Its flagship project – Bandar Sunway – is a well-established integrated township. The company has successfully transformed a mining land to a matured residential and commercial cluster.

Recommendation Chart

Source: RHB