Review

• Excluding the provision for impairment on investment in an associate, which amounted to RM3.1mn, Sunway reported a core net profit of RM294.7mn in 1H23. Results came within ours and consensus' full-year forecasts, accounting for 44% and 42%, respectively. We anticipate more robust 4Q results driven by year-end festivities and school holidays, particularly benefiting the group's property investment segment.

• A first interim dividend of 2sen/share was declared, matching the amount declared in the corresponding period last year.

• YoY: 1H23 revenue increased 14% YoY to RM2.7bn, primarily due to higher contributions from all business segments, except for trading and manufacturing and quarry segments. However, net profit for the quarter grew at a slower pace of 9% YoY to RM294.7mn, mainly due to lower contributions from associates and JVs, alongside higher finance costs and tax expenses. Notably, the property development segment exhibited remarkable growth, with a 37% rise in revenue and a 47% increase in PBT. These boosts were fuelled by robust sales and higher progress billing from new and ongoing local development projects.

• QoQ: Sunway’s 2Q23 core net profit grew 8% QoQ to RM153.0mn on the back of a 16% increase in revenue. The improved performance primarily stemmed from higher contributions across most business segments, offsetting the comparatively weaker performance of the property investment segment. The latter's slower performance in this quarter resulted from lower contributions in the leisure segment, influenced by reduced visitor numbers during the fasting month in April and fewer school and public holidays within the quarter.

• Sunway’s 2Q23 property sales increased 97% QoQ and more than doubled YoY to RM995mn. This boosted the YTD 1H23 property sales to RM1.5bn, reflecting a remarkable 61% YoY increase. Notably, Singapore projects accounted for the largest share of 1H23 sales, comprising 50% of the total. On the domestic front, both Sunway Flora Residence in Bukit Jalil (GDV: RM300mn) and Sunway Dora in Bayan Baru (GDV: RM70mn), Penang, have achieved decent take-up rates of 74% since their official launches in Mar-23 and Feb-23 respectively. – see Figure 1.

Impact

• No change to our FY23-25 earnings forecasts.

Outlook

• Sunway maintains its new sales target of RM2.3bn this year, with 1H23 sales already accounting for 65% of the target. Looking ahead, the group has lined up RM670mn worth of new launches in the 2H.

• With unbilled sales of RM4.9bn and an outstanding construction order book of RM3.5bn (external jobs only), Sunway has earnings visibility for the next 3-4 years.

• We believe the strengthening domestic economy augurs well for Sunway going forward. In particular, Sunway’s leisure, hotel, and healthcare segments are expected to benefit from the improvement of the inbound leisure tourism and medical tourism sectors as international travel continues to normalise.

• In the coming years, we expect the completion of the Rapid Transit System rail link and the potential establishment of the Johor-Singapore Special Economic Zone to bode positively for Sunway City Iskandar Puteri, the group’s flagship township development, which is strategically located between Puteri Harbour and the Second Link to Singapore.

Valuation

• We arrive at a new SOP-derived TP of RM2.40/share (previous RM2.27/share). This incorporates an increased P/E multiple of 14x (previously 12x) for the property development and property investment segments (excluding Sunway REIT) to reflect the upbeat property sector sentiment. We value SunCon and Sunway REIT based on our TPs. As for the healthcare division, we peg the valuation to the effective equity value based on GIC’s offer. Meanwhile, the trading & manufacturing and quarry segment is valued at 10x CY24 earnings. Maintain Buy.

Source: TA Research - 25 Aug 2023