• Maintain BUY and MYR2.65 TP, 39% upside with c.3% FY23F yield. Sunway’s 2Q23 results are in line. The company’s earnings should strengthen in 3Q23, given the completion of Parc Canberra in Singapore. Meanwhile, 1H23 property sales came up to MYR1.5bn, which is on track to achieve management’s MYR2.3bn full-year target. We continue to like Sunway. Given its sizeable landbank exposure to Iskandar Malaysia, the company stands to gain from the favourable impact of the Rapid Transit System link and the Johor-Singapore special economic zone.

• 2Q23 results. Among all the divisions, the property development segment recorded the highest QoQ growth, mainly due to higher sales and billings from new and ongoing projects. The property investment unit, however, recorded weaker earnings due to Ramadan (in April), as well as higher utility charges and manpower costs. On an annual basis, EBIT in 2Q22 was lifted by a MYR26.6m gain on disposal of a start-up investment. The healthcare segment, meanwhile, saw stronger contributions from SMC Sunway City and SMC Velocity, mitigating the share of start-up losses of SMC Penang and Sunway Sanctuary. Note that the share of start-up losses of SMC Penang decreased to MYR1.3m, from MYR2.2m in the previous quarter. Just like 2Q22, a single-tier first interim DPS of 2 sen was declared.

• Singapore project contributed to stronger sales in 2Q23. New property sales came up to MYR1bn (1Q23: MYR505m), bringing the 1H23 total to MYR1.5bn. Despite the recent tightening measures, take-up rates in Terra Hills and The Continuum, launched in February and April, were still rather decent at 36% and 27%. Projects in Singapore contributed MYR763m. For Malaysia, the key contributors were Velocity TWO (MYR161m) and Sunway Flora Residences in Bukit Jalil (MYR151m). Sales for Sunway Flora and Sunway Dora in Bayan Baru – launched in 1Q23 – were encouraging, with 74% of units taken up (including bookings) for both projects. However, sales for Jernih Residence in Kajang and Sunway Alishan in Cheras were slower (48%- and 35%-sold, vs 39%- and 30%-sold in 1Q23). Launches for the rest of the year (total GDV: MYR320m) will mostly be in Iskandar Malaysia, including semi-detached houses and bungalows at Lenang Heights, and landed linked homes in Sunway Iskandar. As more contractual sales kick in, Sunway should be able to hit its MYR2.3bn sales target by year-end.

• We maintain our earnings forecasts. Parc Canberra and Parc Central are expected to be completed in 3Q23 and 1Q24, and the accumulated progressive profits from both projects are now worth MYR131m. Sunway’s unbilled sales and outstanding construction orderbook stood at MYR4.86bn and MYR5.8bn, vs MYR4.39bn and MYR6bn in 1Q23.

• ESG. Our SOP valuation includes an 8% ESG premium on its intrinsic value, given our 3.4 ESG score (out of 4) for the company.

Source: RHB Securities Research - 25 Aug 2023