• Maintain BUY and MYR2.06 TP, 18% upside and c.2% yield. Sunway’s 1Q22 results came above expectations. Property sales were decent at MYR447m and Ki Residences in Singapore was the major contributor. Thus far, most business divisions showed successful recovery post re-opening of economy. Given Sunway’s diversified business model, we believe the continued improvement in other segments will help to mitigate the potential downside in property development given the prevailing industry-wide issues including labour shortage and disruption in supply chain.

• 1Q22 results. Almost all business divisions recorded YoY growth except for trading & manufacturing and quarry divisions. Property development and property investment divisions eased QoQ, as we believe the property development segment was affected by slower work progress and softer sales amongst local property projects post the end of the Home Ownership Campaign in Dec 2021, while the property investment division was due to a seasonality factor. Performance for the healthcare segment remained stable with operating profit of MYR35.7m in 1Q22 vs MYR32.9m in 4Q21 (both numbers are based on a 100% stake).

• Ki Residences the major sales contributor. New property sales achieved MYR447m vs MYR440m in 4Q21. Projects in Singapore were the key contributors, making up 34% of the total sales. Ki Residences is now 90% sold (from 79% in 4Q21), while both Parc Central Tampines and Parc Canberra are already sold out. Locally, response for the recently-launched projects was rather decent. Sunway d’hill Residences in Kota Damansara and Sunway Artessa are now 56% and 43% sold (including bookings), while Sunway Belfield Tower C is 31% booked.

• MYR2.2bn sales target for FY22. Local projects will likely be the key contributors to property sales this year, as the remaining units in Singapore are insignificant and the next launch is Flynn Park in Pasir Panjang worth MYR676m GDV (by effective stake) in 2H22. Some downside risk to the sales target (particularly for local projects) is possible, if inflationary pressure worsens further in the coming months. The weakening of the MYR may also dampen sentiment to some extent.

• Forecast. As we were too conservative in our previous estimates, we raise our FY22-23F earnings by 14-15%. Unbilled sales rose to MYR4.18bn vs MYR3.96bn as at 4Q21, while its outstanding construction orderbook fell slightly to MYR4.44bn from MYR4.75bn as at 4Q21.

• ESG. Our SOP-based TP incorporates an 8% ESG premium given our ESG score of 3.40 for the company, derived using our in-house proprietary methodology.

Source: RHB Research - 27 May 2022