Sunway Bhd (May 22, RM1.52)

Maintain hold with a target price of RM1.60: Sunway Bhd’s net profit for first quarter of financial year 2018 (1QFY18) of RM121.9 million came in within expectations, accounting for 21% and 22% of our and consensus full-year forecasts respectively.

Year-on-year (y-o-y), Sunway’s 1QFY18 revenue and net profit grew 20% and 13% respectively to RM1.3 billion and RM121.9 million. The improvement was largely due to higher contribution from all business divisions, except property development. Property development division’s revenue decreased 7.7% y-o-y to RM132.3 million, mainly due to lower sales and progress billings from local development projects.

Nevertheless, the group’s property investment division was the star performer during the quarter, with the division’s revenue increasing 18% y-o-y to RM220 million. The better performance was driven by higher contribution from Sunway Pyramid Hotel following the completion of refurbishment exercise, Sunway Velocity Hotel which commenced operations in September 2017, and improved performance of Sunway Velocity Mall.

Sunway reported RM166 million sales in 1QFY18 (+17% y-o-y). Key contributors to 1QFY18 sales were Sunway Iskandar and Singapore projects. Unbilled sales eased to RM947 million (effective RM811 million), from RM976 million a quarter ago.

Despite only securing new sales of RM166 million in 1QFY18, management has maintained its sales target of RM1.3 billion for FY18, underpinned by new projects worth RM2.1 billion and other existing projects. Specifically, Sunway and its Singapore joint-venture partners launched Rivercove Residences in Singapore last month. Sales performance was encouraging with 80% of the 628 units sold during its first ballot and booking exercise in April.

The group’s unbilled sales of RM947 million and outstanding construction order book of RM4.6 billion (external jobs only) should provide earnings visibility for the next two to three years. Rolling forward our valuation base year to calendar year 2019 (CY19). We value Sunway at RM1.60, based on target average blended CY19 price-earnings ratio and price-to-book ratio of 13 times and 1.0 times respectively. — TA Securities Research, May 22

This article first appeared in The Edge Financial Daily, on May 23, 2018.

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