Sunway Bhd (Aug 12, RM3.40)

Maintain hold with downward revised target price (TP) of RM3.54: We have revised our sales forecasts lower. We see limited downside to the share price as investors anticipate the special cash dividends. However, post special dividend distribution, we believe reality checks will be focused on its sales performance in Iskandar Region given the gloomy outlook arising from oversupply concerns.

Sunway recorded RM500 million sales mainly from its ongoing projects in the Klang Valley such as Sunway Velocity and Sunway South Quay in the first half of financial year 2015 (1HFY15). We understand that the group has yet to roll out any new launches that were budgeted for 2015, in view of the generally weak market sentiment.

However, it intends to launch RM2.1 billion worth of new properties by the end of the third quarter of FY15 (3QFY15). Of these upcoming launches, we believe Sunway Geo Residence 3 will fare relatively well, benefitting from the Bus Rapid Transit (BRT) that has begun operations recently.

As for the RM1.7 billion sales target, management is closely monitoring the current market conditions before making any revisions. In our opinion, the current weak market sentiment may prompt Sunway to hold back some of its launches to next year, especially the high-rise residential properties.

Hence, we revise our FY15-FY16 sales assumptions lower to RM1.2 billion to RM2 billion from RM1.5 billion to RM2.4 billion previously. Our FY15 sales assumptions of RM1.2 billion represent a contraction of 29% year-on-year (y-o-y), which we think is reasonable given that the year-to-date (YTD) sales have declined 37%.

Sunway Construction Group Bhd (SunCon) was successfully listed on July 27. Management has maintained SunCon’s order book replenishment target of RM2 billion this year in anticipation of clinching a sizable building contract soon.

Meanwhile, Sunway’s shareholders are set to receive a special cash dividend of 25 to 28 sen per share as Sunway will return some of the proceeds from the listing of SunCon to shareholders. We understand that the special cash dividend could be higher than our expectations of 22-25 sen per share, largely due to the higher IPO price and distribution ratio.

Adding it to our projected normal dividend of 11 sen per share, the stock is expected to offer dividend yield of more than 10%. The group is expected to announce the ex-date at end-August or early-September, and payment date is expected a month after the ex-date.

Following the change in sales assumptions, our FY15-FY17 earnings are lowered by 2% to 8%. However, we also raise our FY15 dividend assumptions higher to 36 sen from 33 sen, as we now assume higher special dividend payment based on management guidance. — TA Securities, Aug 12

This article first appeared in the digitaledge Daily on Aug 13, 2015. Subscribe here.

SHARE
RELATED POSTS
  1. OSK's 4Q net profit down 19.3% on higher taxes, lower share of profits from associates and JV
  2. Penang CM says Lee Kah Choon replaced as PDC director a day prior to Umech Land exchange deal
  3. Sunway ceases to be substantial shareholder of IJM