• Maintain BUY and MYR2.06 TP, 24% upside with c.2% yield. Sunway’s 2Q22 results came in above expectations. All key business divisions, except for construction, saw encouraging growth momentum. 1H property sales already hit MYR932m and we think the company should be able to meet its MYR2.2bn target if Flynn Park in Singapore (GDV: MYR676m) can be launched on time this year. A 2 sen first interim dividend was declared.

• 2Q22 results. Except for the construction, trading & manufacturing, and quarry segments, all business divisions saw encouraging growth during the quarter. The strong performance from the property investment division was mainly due to higher visitorship as well as occupancy rates for the hotels. Meanwhile, net gearing ratio increased to 0.50x from 0.46x in the previous quarter, resulting in higher interest expense during the quarter. The higher amount of borrowings was mainly for the working capital for ongoing developments as well as funding for recent new land acquisitions.

• Property sales momentum remains healthy. New property sales achieved MYR485m vs MYR447m in 1Q22, bringing 1H total to MYR932m. Projects in Singapore contributed MYR281m. Locally, the key sales contributors were Belfield (MYR211m), d’hill Residence (MYR117m), Serene (MYR102m), Velocity TWO (MYR100m), and Artessa (MYR65m). Currently all projects in Singapore are 95-100% sold. The take-up rates (plus booking) for Belfield Block C, Velocity TWO Tower D and d’hill Residence have already reached 44%, 38%, and 64%. The newly launched Jernih Residence in Kajang is now 22% sold. However, sales for Artessa at Wangsa Maju is rather slow, only at 48% (43% in 1Q22). The project was launched in November last year.

• Keeping MYR2.2bn sales target. We believe Sunway should be able to meet its MYR2.2bn sales target by year end if Flynn Park in Singapore can be rolled out in 4Q22. In the pipeline, Sunway will likely launch Sunway Alishan in Cheras (GDV: MYR261m) and Sunway Bukit Jalil (GDV: MYR275m) in 2H. Apart from these, some landed homes will also be launched in Sunway City Ipoh, Sunway Wellesley, and Sunway Iskandar. Sunway Gardens in Tianjin will likely be deferred.

• Forecast. In view of the better than expected earnings performance in 1H22, we raise our FY22-24 earnings forecast by 6-15%. Unbilled sales remained steady at MYR4.14bn (from MYR4.18bn as at 1Q22), while its outstanding construction orderbook fell slightly to MYR4.23bn (from MYR4.44bn as at 1Q22).

• ESG. Based on our in-house proprietary methodology, we derived an ESG score of 3.40 for Sunway. Our SOP-based TP includes an 8% ESG premium.

Source: RHB Research - 25 Aug 2022