The following are key takeaways from Sunway's 2Q24 results briefing:

Robust Healthcare Division Performance

Sunway Healthcare Group (SHG) delivered robust growth in the first half of 2024, with EBITDA increasing by 34% YoY to RM202mn. This strong performance was driven by a 9% increase in patient census, with margins improving to 24% from 23% the previous year. While management anticipates full-year EBITDA growth to exceed 20%, our projections conservatively estimate a 19% increase, bringing SHG’s EBITDA to RM455mn.

SHG’s new hospitals have demonstrated impressive operational performance shortly after opening. Sunway Medical Centre (SMC) Velocity achieved EBITDA breakeven within its first year of operation, and SMC Penang outperformed expectations by reaching EBITDA breakeven in just two months. These results underscore the group's ability to quickly stabilise and optimise new facilities, positioning them for continued success.

The ongoing expansion projects are on track, with SMC Damansara set to begin operations in 4Q24 and SMC Ipoh in 1Q25. We expect these new facilities to replicate the success of previous openings, achieving EBITDA positive results within 12 months. Currently, SMC Damansara is in the pre-commencement phase, and both new hospitals have secured operating licenses and completed the recruitment of doctors and nurses. The expansion will significantly increase SHG’s capacity, with a target of over 2,300 beds by 2025, aimed at meeting the growing demand for high-quality healthcare services – see Figure 1.

With strong financial performance and successful new hospital openings, SHG is advancing towards a public listing. The group has received the green light from its strategic partner GIC, which holds a 16% stake in SHG, and is currently engaging with investment bankers to prepare for the IPO. Given the momentum and operational success, we believe that an IPO by the first half of 2026 is highly probable, well before the agreed deadline of 2027. This listing is expected to unlock significant value for shareholders and further position SHG as a leading player in the healthcare sector.

Johor Property Sales Accelerate Significantly

Sunway has achieved 1H24 property sales of RM1.3bn, representing a 15% YoY decline. This decrease is primarily due to fewer sales and a significant drop in launches, particularly in Singapore, where a substantial RM2.7bn project was launched last year. In 1H24, Sunway launched three projects with a total gross development value (GDV) of RM811mn, marking a 73% reduction in launches compared to the previous year. Despite this, Sunway remains committed to its RM2.6bn sales target for the year (+6% YoY), with 1H 2024 sales already covering 49% of the target. The group has planned RM1.2bn worth of new launches in the second half, reflecting its confidence in continued market momentum.

Johor region, and specifically Sunway City Iskandar Puteri (SCIP), has rapidly emerged as a key growth driver for Sunway’s property development segment. The establishment of the Johor-Singapore Special Economic Zone (JS-SEZ) and enhanced connectivity through the Rapid Transit System are set to attract significant investments to the region, making SCIP a prime beneficiary of these developments. Recent launches in SCIP, such as Sunway Aviana’s two-storey terraces, have seen remarkable demand, with all phases fully sold out. This strong performance has propelled property sales in Johor, which recorded an impressive over 400% YoY increase in 1H024, reflecting the region's growing appeal.

While Johor's sales have surged, the Klang Valley continues to be Sunway’s largest contributor, accounting for 53% of total sales. However, Johor's contribution has risen significantly to 23% of total sales, a notable increase from the 3-9% range seen over the past five years. This shift underscores Johor's growing importance in Sunway’s portfolio. In contrast, the Klang Valley experienced a more modest 28% year-on-year sales growth during the same period, highlighting the increasing focus on Johor as a key growth area for Sunway.

In the second half of the year, Sunway plans to launch Sunway Maple Meadows (GDV: RM170mn) in SCIP, its first project offering freehold semi-detached homes. Priced above RM1mn, this development is strategically aimed at attracting Singaporean buyers to the Iskandar region, leveraging the area’s growing appeal and prime location.

Impact

No change to our FY24-26 earnings forecasts

Valuation

We maintain Buy on Sunway with an unchanged TP of RM4.76/share, based on SOP valuation and a 5% ESG premium.

Source: TA Research - 30 Aug 2024