Sunway expected to deliver sturdy performance

Sunway Bhd (Nov 28, RM3.00)

Maintain market perform with a target price of RM3.23: For the cumulative nine months ended Sept 30, 2016 (9MFY16), Sunway Bhd recorded a core net profit (CNP) of RM376.3 million, which accounted for 78% and 73% of our and consensus full-year estimates and well within expectations. Property sales of RM864 million were on track to meet our and management’s target of RM1 billion and RM1.1 billion respectively. No dividend was declared as expected.

However, we do note that our and management’s sales targets only saw a downward revision from RM1.4 billion in October due to the revision in planned launches.

The 9MFY16 revenue saw a decent improvement of 10% year-on-year (y-o-y), backed by steady growth from most divisions, which registered growth of between 6% and 33%, except for the construction and quarry divisions, which registered decline in revenue of 14% and 15% respectively. However, the CNP still registered a decline of 9%, driven by the spike in minority interest (+248% y-o-y) as a result of a lower effective holding in Sunway Construction Group Bhd. Quarter-on-quarter, its CNP in the third quarter ended Sept 30, 2016 grew 10% albeit on softer revenue, which saw a decline of 2%. The boost was mainly driven by improvement in contributions from its associate and jointly controlled entities, which registered a growth of 36% due to better progressive billings from its Singapore projects.

On outlook, we remain confident with Sunway’s ability to deliver a sturdy performance for the year premised on its strong unbilled sales of RM1.8 billion with a two-year visibility, a robust outstanding order book of RM4.8 billion that provides two to three years of visibility and other divisions that have been generating decent growth over the years. The downside risks to our call include weaker-than-expected property sales and construction order book replenishment, higher-than-expected sales and administrative costs, negative real estate policies and the tighter lending environment. — Kenanga Research, Nov 28

This article first appeared in The Edge Financial Daily, on Nov 29, 2016. Subscribe to The Edge Financial Daily here.