Sunway’s earnings boosted by construction and trading

Sunway Bhd (May 27, RM3.45)

Maintain buy with unchanged target price of RM3.90. Sunway Bhd’s first quarter ended March (1QFY15) core earnings came in within our and consensus expectations.

In 1Q, Sunway reported core earnings of RM124 million on the back of a 3.3% growth in revenue and 2.9% earnings before interest and tax margin expansion.

Our core net profit excludes capital gain from the disposal of Sunway Hotel George Town and Wisma Sunway amounting to RM22.9 million.

Results are within our expectations, accounting for 24% of our full year forecast. No dividend was declared.

Revenue was driven by strong growth from its trading and construction divisions, but partially mitigated by softer sales from its property segment on slower progress billing, in tandem with the soft property environment.

Growth from the trading and manufacturing division was mainly boosted by pre-goods and services tax demand, while the construction sector was supported by higher progress billings from the local building projects and precast product projects in Singapore.

In 1Q, Sunway achieved property sales of RM247 million mainly contributed by projects like Velocity, South Quay, and Eastwood.

Effective unbilled sales stood at RM2.5 billion as at end-March.

Meanwhile, total outstanding construction order book was at RM2.8 billion as at end-March.

We continue to like Sunway for its strategic property land bank, extensive experience in the construction sector and inexpensive valuation of 0.7 times previous revalued net asset value.

Risks to our recommendation include a sharper-than-expected slowdown in the domestic property market, prolonged oversupply within the Johor region and lower-than-expected construction contract wins. — Affin Hwang Capital Research

This article first appeared in The Edge Financial Daily, on May 28, 2015.