It has been a busy year for Sunway as it has announced 4 land deals, expanded its quarry business and opened its new medical centre in Sunway Velocity, KL. Key takeaways from our meeting with management include; 1) RM1.3bn sales target is on track; 2) solid balance sheet supports future landbanking; 3) strategic ambition to grow its non-property related businesses. Maintain Hold with an unchanged target price of RM1.78. FY19 Sales Target is on Track

Management is maintaining its 2019 sales target of RM1.3bn. Recall, the group’s 1H19 property sales declined 13% YoY to RM735mn, largely due to absence of new launches in Singapore. Note that oversea sales only accounted for 17% of Sunway’s 1H19 sales vs. 1H18’s 79%. Nonetheless, as compared to a quarter ago, property sales picked up significantly in 2Q, driven by maiden sales contribution from Sunway Avila Wangsa Maju (GDV: RM230mn) – see Figure 1. Launched in May-19, we understand that 80% the units were taken up. Sunway’s recent launches attract warm responses, achieving >70% take up for the high-rise projects - see Appendix 1. With 1H19 sales amounted to RM735mn, we believe the group is on track to meet our FY19 sales assumptions and management’s sales target of RM1.3bn. Looking ahead, 4Q sales are expected to be driven by new launches in Johor (GDV: RM150mn) and Singapore (RM1.0bn).

Solid Balance Sheet Supports Future Landbanking

Sunway has announced impressive acquisition trail, leveraging on its solid balance sheet and the availability of prime lands with reasonable pricing in the current soft market. YTD, the group has locked in 4 land deals with a combined GDV of approximately RM4.5bn – see Figure 2. With the new acquisitions, Sunway has a strong portfolio of projects with a combined potential GDV of RM58.7bn (effective RM39.3bn). Assuming an annual sales of RM2-3bn, we estimate it would sustain the group’s revenue for the next 15-20 years. Despite having replenished GDV of RM4.5bn to date, the group remains on the lookout for new landbanking opportunities. Going forward, the group plans to ramp up its landbanking activities focusing on strategic lands suitable for standalone or transit-oriented development. Future landbanking is supported by the group’s healthy net gearing of 0.36x and a cash balance of RM6.4bn.

Strategic Ambition to Grow Non-property Related Business

Given the challenging outlook in the property market, we are upbeat on the group’s strategic ambition to grow its non-property related businesses such as healthcare, trading & manufacturing, leisure, quarry and building materials to become market leaders in their respective sectors. Specifically, the healthcare division is the key division to grow as Sunway is targeting to set up 4 new hospitals in the Klang Valley, Penang and Ipoh – see Figure 3. This could potentially increase the group’s total beds from 876 beds currently (includes Sunway Velocity Medical Centre which opened its door in Sep) to >1,500 beds by 2023. Potential listing of its healthcare division is a re-rating catalyst.

On the other hand, the group is also expanding its quarry division. It has completed the acquisition of Blacktop Industries S/B in July, increasing the total number of quarries under Sunway’s operations to 8 (from 6) and premix plants to 22 (from 13). Going forward, its quarry division’s market share in the central region is expected to improve further to 22% from 15% currently with the completion of acquisition of Dolomite Quarry.

Sunway GeoLake Residence and Townhouse Visit

Separately, our recent visit to Sunway GeoLake Residence and Townhouse within Sunway South Quay assures us that the demand for properties with good infrastructure and amenities in strategic locations will remain resilient. Sunway GeoLake Residences comprises 420 units of condominium (GDV: RM480mn) and 44 townhouses (GDV: RM100mn) spreading across 6.49 acres of land located in the heart of Sunway City. The sizes of the condominium units range from 883 sq. ft to 1,776 sq. ft. with an average selling price of RM900psf. Launched in Jul-18, more than 90% of the condominium units are sold. Meanwhile, the townhouses, which are priced from RM2.0mn/unit (built up area of 2,799 sq. ft-3,455 sq. ft.), have now registered a take-up rate of 70% since its official launch in Jun-19.

Impact

No change to our FY19-21 earnings forecasts.

Valuation

No change to our target price of RM1.78/share, based on target average blended CY20 PE/PB of 14x/0.9x. With a potential return of 10.8%, we maintain our Hold recommendation on Sunway.

Source: TA Research - 9 Oct 2019