Review

• Sunway’s FY16 normalised net profit of RM547.4mn beat expectations, accounting for 111% and 110% of ours and consensus’ full-year forecasts respectively. The variance was largely due to: 1) higher-than-expected profit contribution from associates and JV entities, and 2) lower-thanexpected effective tax rates.

• For this quarter, the board has declared a second interim single tier cash dividend of 4.0sen/share plus a distribution of treasury shares on the basis of 1 treasury share for every 100 shares held on the entitlement date of 13 April 2017. The effective dividend for 4Q16 works out to 7.14sen/share, bringing 2016 total dividends to 12.14sen/share. This also came in higher than our dividend projections of 11sen/share. Based on 12.14sen/share, the effective dividend yield is 3.8%.

• Sunway’s FY16 revenue grew 6% YoY to RM4.7bn. The increase in revenue was driven by better performance across the key business divisions. However, the group’s normalised net profit during the period declined 7% YoY to RM547.3mn. This was mainly due to higher minority interest arising from the listing of SunCon in July-2015 that saw Sunway’s stake in SunCon reduced to 54.4%.

• QoQ, 4Q16 normalised net profit advanced 9% to RM148.1mn, driven by 20% growth in revenue. The higher sequential profit was largely contributed by stronger performance for property development division due to the completion of several local development projects as well as higher progress billings from local projects. In addition, property development division EBIT margin expanded by +7.8ppt QoQ, benefiting from favourable product mix.

• Sunway’s 2016 new sales were flat at RM1.2bn (effective: RM923mn) from a year ago. Nonetheless, this was slightly higher than both ours and management’s sales projections of RM1.1bn. Key contributors to 2016 sales are Sunway Mont Residence in Mont Kiara, Emerald Residences & Boulevard (landed homes and retail shops) in Sunway Iskandar, Sunway Gandaria (retail shops & serviced apartments) in Bangi and overseas projects in Singapore and China. Unbilled sales eased to RM1.5bn (effective RM1.1bn), from RM1.8bn a quarter ago, providing earnings visibility of more than one year.

Impact

• Our FY17 and FY18 earnings are adjusted by +10% and -2.1% respectively after factoring in the following;

1. Actual FY16 results;

2. Revised earnings for SunCon – see results report dated 24 Feb;

3. Change in progress billings assumptions to reflect the timing of launches;

4. Lower effective tax rate of 18% (from 20% previously).

Outlook

• Sunway is targeting new sales of RM1.1bn this year, underpinned by new projects worth RM2.0bn (see Figure 3) and other existing projects. New projects to be introduced in 2Q17 include Sunway Industrial Park (GDV: RM100mn, industrial), Sunway Wellesley (GDV: RM100mn, Shops), The Grid @ Sunway Iskandar (GDV: RM200mn, Apartments, Retail & Offices) and TianJin Eco City (GDV: RM150mn, Condominium).

• We are positive on Sunway’s recent acquisition of 8.45 acres of land along Jalan Peel, Cheras, which will be developed into Sunway Velocity TWO, directly opposite the Sunway Velocity Mall. We see synergies between the two developments as more than 70% of Sunway Velocity TWO will comprise residential units, which will complement the existing Sunway Velocity. Note that Sunway Velocity consists of 75% commercial units, including Sunway Velocity Shopping Mall, Sunway Velocity Medical Centre and Sunway Velocity Hotel.

Valuation

• Taking into account the earnings adjustment and new target price for SunCon, our target price is revised higher to RM3.40/share, (from RM3.27/share previously), which is pegged to a 10% discount to is SOP value of RM3.77/share. Reiterate Hold.

Source: TA Research - 28 Feb 2017