Sunway - Priced to Perfection

Date: 
2024-05-23
Firm: 
KENANGA
Stock: 
Price Target: 
2.47
Price Call: 
SELL
Last Price: 
3.75
Upside/Downside: 
-1.28 (34.13%)

SUNWAY’s 1QFY24 results met expectations. Its 1QFY24 core net profit rose 26% YoY on stronger property and construction billings and easing cost pressure. The outlook for its core property, construction and private healthcare segments is positive. We maintain our forecasts, fine-tune up our TP to RM2.47 (from RM2.42) but maintain our UNDERPERFORM call as valuations are rich.

SUNWAY’s 1QFY24 core net profit of RM146.6m (adjusted for ICPS payments of RM25.7m) came in at only 17% and 19% of our full-year forecast and the full-year consensus estimate, respectively. However, we consider the results within expectations as we expect stronger earnings during the remaining quarters as progress billings accelerate for both property and construction arms.

YoY, its 1QFY24 revenue rose 12% driven largely by construction (+14%), property development (+16%), and quarrying (+34%) on higher volumes and average selling prices of aggregates and premix. Its core net profit (after accounting for ICPS payments) rose by a sharper 26% as the easing in cost pressures more than offset higher finance cost.

QoQ, its 1QFY24 revenue declined 24% on seasonally lower property sales and slower construction progress billings. However, its core net profit only declined by 18% thanks to higher contributions from associates and JVs.

Outlook. SUNWAY guided for positive outlook across its business segments. Its property division will continue to capitalise on new launches in established townships while its projects in Singapore are on track for handover in 2QFY24. Over the medium term, its project in Johor will benefit from the Johor-Singapore Special Economic Zone (JS-SEZ) and the Rapid Transit Link (RTS Link).

Meanwhile, its construction unit is eyeing opportunities in data centre building jobs, MRT3 and Penang LRT Mutiara Line work packages, and contracts from parent and sister companies. It healthcare unit is poised to benefit from medical tourism amidst a weak MYR. Two new hospitals under its stable, i.e. Sunway Medical Centre Damansara and Sunway Medical Centre Ipoh are slated for opening in 4QFY24 and 1QFY25 respectively.

Forecasts. Maintained.

Valuations. We raise our SoP-TP of RM2.47 (from RM2.42) as we update our TPs for SREIT (OP; TP: RM1.65) and SUNCON (MP; TP: RM3.16), and we maintain our 55% discount to RNAV for SUNWAY’s property development segment (in line with industry peers) (see Page 3). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like SUNWAY for: (i) having an eye for good land parcels, enabling it to execute quick turnaround for its property projects, (ii) it growing private healthy business backed by a pipeline of new medical centres within brown field townships, (iii) a diversified range of investment assets that provides recurring incomes, and (iv) a trusted Sunway brand. However, its valuations are fair following the recent run- up in its share price. Maintain UNDERPERFORM.

Risks to our call include: (i) a strong pickup in the property, hospitality and MICE sectors, (ii) a decline inmortgage rates boosting affordability and (iii) Improved spending confidence, prompting consumers to buy big ticket items including properties.

Source: Kenanga Research - 23 May 2024

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