Sunway Bhd (Dec 10, RM3.05)

Maintain buy with an unchanged target price (TP) of RM3.90: Sunway Bhd’s 51%-owned subsidiary Sunway Construction Group Bhd’s (SunCon) recent contract win of RM106.7 million has pushed the group’s order book replenishment to RM2.6 billion, successfully exceeding its annual target of RM2.5 billion.

The RM106.7 million contract is for the construction of substructure works for the proposed mixed commercial development at Persiaran KLCC and expected completion is by end-2017. SunCon’s current total construction order book stands at a high of RM4.3 billion.

However, on the softer side, in line with the current challenging property market environment, Sunway has also recently revised its 2015 property sales target to RM1 billion, from RM1.7 billion initially.

Sunway’s nine-month financial year 2015 (9MFY15) effective property sales fell to RM564 million from RM951 million in 9MFY14. We believe fourth quarter FY15 (4QFY15) sales should pick up as Sunway has launched three projects in 4Q, with a total gross development value (GDV) of RM1 billion.

As such, we have also revised our effective property sales target to RM1 billion from RM1.3 billion previously. As at end-September this year, the total effective unbilled sales remain high at RM1.7 billion.

Given the revision in our property sales target, we have revised our FY15 to FY17 earnings per share forecast slightly by 3% to 5%.

However, we maintain our TP of RM3.90, still based on a 30% discount to its revalued net asset valuation (RNAV).

Despite the current challenging property market, we continue to like Sunway for its exposure to the construction sector, recurring income from its investment properties, and the inexpensive valuation of 0.6 times P/RNAV. Maintain “buy” on Sunway. We believe the current weakness in the share price is an opportunity to accumulate. — Affin Hwang Capital, Dec 10

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This article first appeared in The Edge Financial Daily, on Dec 11, 2015. Subscribe to The Edge Financial Daily here.

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