• Maintain BUY and MYR2.06 TP, 30% upside with c.3% FY22F yield. Sunway’s 3Q22 results outperformed expectations. Its property investment division continued to see encouraging growth. Although there could be some downside risk to management’s MYR2.2bn sales target – given the impact of the interest rate hikes – we think the group’s leisure, hospitality and healthcare segments should continue to benefit from the recovery in the domestic leisure and medical-related tourism sectors.

• 3Q22 results. Among its divisions, the property investment segment saw the strongest growth, mainly due to higher visitor numbers and hotel occupancy rates, a stronger performance from the REIT, and a gain of MYR16.6m arising from the disposal of a property investment asset. The sequentially drop in property development revenue stemmed from slower billings from local projects, while its higher EBIT margin in the previous quarter was attributed to the completion of a local project that boosted profit recognition. Net gearing ratio was relatively unchanged, at 0.49x.

• Sales momentum delecerated slightly. New property sales totalled MYR498m vs MYR485m in 2Q22, bringing the 9M22 figure to MYR1.43bn. Projects in Singapore contributed MYR380m. For Malaysia, the key contributors were Belfield (MYR325m), Velocity TWO (MYR162m), d’hill Residences (MYR167m), Serene (MYR139m), and Artessa (MYR96m). Sales for new projects – Jernih Residence in Kajang and Sunway Alishan – which were launched in May and September, seem a little slow – take-up rates (inclusive of bookings) reached only 27% and 19%. Likewise, Artessa is now 53% sold vs 48% in 2Q22. This could be due to the impact of multiple rounds of interest rate hikes this year. Meanwhile, the take-up rate (plus booking) for Belfield Block C, Velocity TWO Tower D and d’hill Residences were at 54%, 49% and 71% (from 44%, 38% and 64% in 2Q22).

• Potential downside risk to MYR2.2bn sales target. We understand that management is still hopeful about reaching its MYR2.2bn sales target. However, there could be a potential downside risk. Flynn Park in Singapore (GDV: SGD700m) is now scheduled to be launched only in 2023, and this could be due to the recent tightening of housing loan limits in the city state. Locally, Sunway will not likely roll out anymore new projects in 4Q22, and only focus on selling the existing ongoing ones.

• Forecast. In view of the stronger-than-expected earnings, we raise our FY22-24 earnings forecasts by 14-15%. Unbilled sales inched up slightly to MYR4.24bn vs MYR4.14bn in 2Q22, while its outstanding construction orderbook fell to MYR4.05bn, from MYR4.23bn in 2Q22.

• ESG. As per our in-house proprietary methodology, our SOP valuation includes a 8% ESG premium applied, as Sunway’s ESC score is 4 notches above our country median.

Source: RHB Research - 29 Nov 2022