The following are key takeaways from Sunway's 3Q24 results briefing:

3Q Results Recap

Sunway maintained its strong performance in 3Q24, building on momentum from the first half of the year. Year-on-year and quarter-on-quarter improvements were seen across most business segments, with healthcare, property development, property investment, and construction serving as key growth drivers. While 9M24 results benefited from a lumpy earnings boost from the completion of Parc Central Residences in Singapore in July 2024, stronger-thanexpected contributions from the property and healthcare divisions propelled 9M24 net profit growth, surpassing both our and market expectations.

All Eyes on Healthcare Listing

Sunway Healthcare Group (SHG) achieved robust growth in 9M24, with EBITDA rising 24% YoY to RM35mn, driven by a 10% increase in licensed bed capacity to 1240 beds and an 11% growth in patient census. This performance suggests our 19% EBITDA growth assumption may be conservative. Expansion plans are on track, with Sunway Medical Centre (SMC) Damansara set to open next month and SMC Ipoh in 1Q25. We expect these new hospitals to replicate the success of previous openings, achieving EBITDA positive results within 12 months. These additions will expand SHG’s portfolio to five hospitals with approximately 2,500 beds, meeting the growing demand for quality healthcare.

Given the momentum and operational success, we believe that an IPO by early 2026 is highly probable, ahead of the 2027 deadline agreed upon with its strategic partner GIC, which holds a 16% stake in SHG. The IPO is expected to unlock significant value for shareholders and cement SHG’s position as a leading healthcare provider.

FY24 Sales Target of RM2.6bn is Intact

Sunway recorded 9M24 property sales of RM1.85bn, representing 71% of its RM2.6bn FY24 sales target (+6% YoY). Looking ahead, Sunway remains confident about achieving and potentially surpassing its sales target, with RM1.2bn worth of new launches planned for 4Q24. Notably, the Novo Place EC project in Singapore (GDV: SGD790mn), launched in November 2024, achieved 57% sales on its launch day.

Johor Property Sales Accelerate Significantly

Johor, particularly Sunway City Iskandar Puteri (SCIP), has become a significant growth driver for Sunway’s property development segment. The establishment of the Johor-Singapore Special Economic Zone (JSSEZ) and enhanced connectivity via the Rapid Transit System are set to attract substantial investments, positioning SCIP as a key beneficiary. This has driven Johor’s property sales to soar 124% YoY in 9M24, underscoring its rising appeal. Johor’s contribution to Sunway’s total sales has also grown significantly to 20%, compared to 3–9% over the past five years, marking its increasing prominence within the portfolio. Meanwhile, the Klang Valley remains the largest contributor at 57% of total sales, with a steady 28% YoY growth. Strong demand for landed homes in SCIP is evident in rising prices. Sunway Aviana Phase 1 launched in October 2023, was priced at RM430 psf, while Sunway Maple Residence, SCIP’s first freehold semi-detached project, debuted in September 2024 at RM550 psf. Following the swift sellout, newer units at Sunway Maple are now priced above RM600 psf, showcasing robust market momentum and SCIP’s growing reputation as a prime destination for premium landed properties.

Impact

We raise our FY24-26 net profit forecast by 16-22% to account for stronger contributions from the healthcare and property development segments.

Valuation

We remain positive about Sunway, supported by its strategic exposure to the high-growth healthcare sector and its position as a key beneficiary of the JSSEZ. Despite a 20% share price increase in the past three months, we expect further momentum ahead of the SHG IPO, with potential for share distribution or special dividends, as seen in Sunway Construction’s IPO.

Our SOP-derived target price is raised to RM5.60 (from RM4.76), reflecting 1) higher TP for Sunway REIT and 2) rolled forward base year to FY26F to align with the SHG IPO timeline, raising the EV/EBITDA multiple to 25x (from 24x) to reflect SHG’s strong growth prospects, supported by its rapid expansion strategy targeting 3,000 beds by 2030. Additionally, we value the property development segment based on FY26F earnings to reflect the anticipated benefits from the RTS completion in 2026 and continued progress in the JSSEZ. These positive adjustments are partially offset by a lower valuation for Sunway Construction following recent target price downgrades.

We maintain a Buy recommendation on the stock.

Source: TA Research - 28 Nov 2024