Investment Highlights

• We maintain BUY on Sunway with an unchanged SOP-based fair value (FV) of RM2.40/share, which implies FY24F PE of 17x, 1 standard deviation above its 3-year median of 12x. Our FV also reflects a 3% premium for our 4-star ESG rating (Exhibits 5 & 6).

• We made no changes to our earnings forecasts as Sunway’s 9MFY23 core net profit (CNP) of RM484mil came in within our expectation, accounting for 79% of our FY23F earnings and 72% of street’s. We note 3QFY23 recognised a lumpy development profit from its Singapore property development project, which is unlikely to recur in the next quarter.

• In 9MFY23, Sunway’s property development revenue rose by 27% YoY while PBT grew 68% YoY. This was driven by higher property sales and stronger progress billings from new and ongoing local projects. Its current strong unbilled sales of RM4.6bil are expected to be recognised progressively in FY23F-FY25F.

• Sunway’s 9MFY23 new sales surged 46% YoY to RM2bil, attaining 91% of its FY23F sales target of RM2.3bil (Exhibit 3). The major sales contributors are its projects from Singapore (43%), and Velocity TWO (11%) and Sunway Flora Residences (11%) from Malaysia.

• Sunway has successfully achieved its FY23F targeted launch of RM3.5bil, driven by its 9MFY23 launches of RM3.5bil (6.5x YoY). The major projects are The Continuum (RM2bil) and Terra Hills (RM700mil) in Singapore (Exhibit 4). In 4QFY23, we expect Sunway to launch the remaining RM170mil worth of projects in Ipoh and Johor.

• 9MFY23 property investment’s revenue earnings improved 40% YoY as a result of increased visitors to its theme parks and improved hotel occupancy rates. However, 9MFY23 PBT declined by 15% due to elevated utility charges and increased manpower costs.

• 9MFY23 revenue of the construction segment rose by 17% YoY while PBT increased by 6%. This was mainly attributed to higher progress billings from local construction projects.

• Healthcare’s 9MHFY23 share of net profit grew 6% YoY to RM111mil as a result of the improvement in hospital activities, particularly at Sunway Medical Centre (SMC), Sunway City and SMC Velocity, which mitigated the share of start-up operational losses from SMC Penang and Sunway Sanctuary as well as higher operating costs. In addition, there was a higher share of additional tax payable of RM5mil following the normalisation of SMC Sunway City’s tax paying status as its investment tax allowance was fully utilised in FY22.

• On a QoQ comparison, all segments except “others” posted stronger PBT in 3QFY23. In 3QFY23, property development PBT expanded 44% QoQ due to the recognition of a lumpy development profit of RM46mil from its Singapore property development project. Due to the adoption of MFRS 15, the development profit from 2 of Sunway’s Singapore property development projects will only be recognised upon completion and handover of the projects instead of the typical practice of recognising on a progress billing basis.

• The 3QFY23 PBT in property investment segment surged 63% QoQ from increased visitors to its theme parks as well as higher contribution of associate company, Sunway REIT. Meanwhile, the construction segment’s 3QFY23 PBT was 15% higher QoQ due to stronger progress billings of local construction projects. The 3QFY23 PBT for other segments slid 6% QoQ from lower contributions of community pharmacy business and treasury functions.

• Nevertheless, we believe the long-term outlook for Sunway remains bright premised on its:
  (i) strong unbilled sales of RM4.6bil (3x FY24F property development revenue),
  (ii) robust outstanding order book of RM5.8bil (4x FY24F construction revenue), and
  (iii) expansion plans for healthcare business.

• The stock currently trades at a compelling FY24F PE of 13.5x vs. its 5-year peak of over 20x.

Source: AmInvest Research - 23 Nov 2023