Investment Highlights

• We maintain BUY on Sunway with an unchanged SOP-based fair value (FV) of RM2.39/share, which implies  an FY24F PE of 17x, 1 standard deviation above its 3- year median of 12x. Our FV also reflects a 3% premium  for our 4-star ESG rating (Exhibits 5 & 6). 

• We made no changes to our earnings forecasts as  Sunway’s 1QFY23 core net profit (CNP) of RM141mil  came in within our expectation and consensus'. It  accounted for 23% of our FY23F earnings and 21% of  street’s. 

• In 1QFY23, Sunway’s property development revenue  rose by 57% YoY. This was driven by higher progress  billings from ongoing local projects. However, the  segment’s PBT fell marginally by 2% YoY due to lower  profit recognition from overseas development  projects.

• Sunway’s 1QFY23 new sales grew 13% YoY to  RM505mil, attaining 22% of its FY23 sales target of  RM2.3bil (Exhibit 3). 

• Sunway ramped up its launches in 1QFY23 to RM3bil  (vs. nil in 1QFY22), making up 88% of its FY23F  targeted launches of RM3.5bil. The major projects are  The Continuum (RM2bil) and Terra Hills (RM700mil) in Singapore (Exhibit 4).

• 1QFY23 property investment’s earnings surged 49%,  driven by revenue growth of 73% YoY as a result of  increased visitors to its theme parks and improved  hotel occupancy rates following the reopening of the  economy and less stringent SOPs.

• Its revenue in construction segment fell 11% YoY while  PBT dropped 17% YoY in 1QFY23. This is mainly due  to lower progress billings from some local  construction projects which are still in the initial  stages of construction schedules.

• Its healthcare’s 1QFY23 share of net profit inched up  2% YoY to RM29mil as a result of the improvement in  hospital activities, particularly at Sunway Medical  Centre and Sunway Medical Centre Velocity.

• On a QoQ comparison, all segments posted weaker PBT in 1QFY23. In 1QFY23, property development segment’s  PBT was 67% lower QoQ due to lower progress billings from on-going local development projects. In addition, the  higher PBT in the preceding quarter was boosted by write-backs of overprovision of development costs and  additional profits from completion and handover of a local project.

• 1QFY23 PBT of its property investments decreased by 11% QoQ due to lower contributions from the leisure and  hospitality segments which tend to peak in the final quarter of the year.

• Meanwhile, construction segment’s 1QFY23 PBT declined 33% QoQ despite a 13% QoQ growth in revenue. The  PBT margin reduced to 12% from 20% in 4QFY22 as there was recalibration of margin for projects nearing  completion in the preceding quarter. 

• We Believe the Long-term Outlook for Sunway Remains Bright Premised on Its: 

(i) Strong Unbilled Sales of RM4.4bil (2.9x FY23F Property Development Revenue); 

(ii) Robust Outstanding Order Book of RM6bil (4.1x FY23F Construction Revenue); and

(iii) Expansion Plans for Healthcare Business (which Could Increase FY23F Capacity by 82%). 

• The Stock Currently Trades at a Compelling FY24F PE of 11x Vs. Its 5-year Peak of Over 20x.

Source: AmInvest Research - 25 May 2023