Sunway’s FY19 Core PATMI of RM638.8m (+14% YoY) Was Within Expectations. Declared a Second Interim Dividend of 4.5 Sen Per Share, Bringing FY19 to 9.07 Sen Per Share (FY18: 7.12 Sen Per Share). New Effective Sales of RM380m Was Achieved in 4Q19, Bringing FY19 Effective Sales to RM1.1bn (110% of Full Year Target). Sunway Has Set a Higher Effective Sales Target for FY20 (RM1.4bn) Which Is Backed by a Much Stronger Effective GDV Launch Target (RM3.3bn) Whereby a Majority of It Will be Located in Singapore. We Increase Our FY20/21 Earnings Forecasts by +6.4%/+0.1% to Reflect Stronger Foreign Contributions. Maintain BUY With a Higher TP of RM2.23 (from RM2.17) Based on a 10% Holding Discount to SOP-derived Value of RM2.52

Within expectations. Sunway’s 4QFY19 core PATMI of RM221.9m (+33% QoQ, +45.3% YoY), brings the FY19 sum to RM638.8m (+14% YoY), forming 102.9% and 98.9% of our and consensus full year forecasts, respectively. FY19 core PATMI sum has been arrived after excluding +RM73.4m worth of EIs, which mainly includes +RM73.9m in revaluation gains, +RM30.2m in reversal of provision for deferred taxation, -RM79.6m in impairment and write offs, and a +RM49.3m of disposal gain.

Dividend. Declared a second interim dividend of 4.5 sen per share, bringing FY19 to 9.07 sen per share (FY18: 7.12 sen per share). Dividend Reinvestment Scheme will apply to the entire second interim dividend whereby details on pricing, book closure and payment date will be made at a later date.

QoQ. 4Q19 core PATMI increased +33% to RM221.9m largely due to the improved contributions of the property development segment (which also saw the partial recognition of the Tianjin project) and improved treasury operations.

YoY. Core PATMI rose +45.3% to RM221.9m on the back of a much stronger progressive billing recognition in the property development segment and a higher share of profits from Sunway REIT.

YTD. FY19 recorded an increase of +14% to RM638.8m in core PATMI which was mainly supported by improved property development segment (including JV contributions), improved treasury operations and a lower effective tax rate.

Property development. New effective sales of RM380m was achieved in 4Q19, bringing FY19 effective sales to RM1.1bn, representing 110% of its full year target. Unbilled sales stood at RM2.1bn, representing a strong cover ratio of 3.8x on FY19’s property revenue. Sunway has set a higher effective sales target for FY20 (RM1.4bn) which is backed by a much stronger effective GDV launch target (RM3.3bn) whereby a majority of it will be located in Singapore. We remain positive on the Singapore launches as we note that Parc Canberra (Executive Condominium) which was launched only a month ago has already garnered a take up of c.60%.

Construction. SunCon reported FY19 core earnings of RM134.1m (-7% YoY) while current orderbook stands at RM5.2bn which implies a healthy cover of 3x on FY19 construction revenue.

Healthcare. The segment reported a healthy RM61.8m PAT as the strong performance of SMC3 could offset the initial operating losses of the new hospital.

Forecast. We increase our FY20/21 earnings forecasts by +6.4%/+0.1% to reflect a higher lumpy foreign contribution i.e. the remaining Tianjin units which have yet to be handed over coupled with better than expected margins from the Rivercove Residences project due to managed construction costs

Maintain BUY with a higher TP of RM2.23 (from RM2.17) based on a 10% holding discount to SOP-derived value of RM2.52 after imputing the change in forecast and minor bookkeeping. Sunway remains our top pick given its well integrated property and construction segments. Its hidden gem, the healthcare business (with 4 new hospitals coming on stream over the next three years) has yet to be appreciated as it is embedded within the parent-co. These coupled with the resilient earnings from mature investment properties alongside its growing building materials business and quarry operations justifies for the re-rating of the stock.

Source: Hong Leong Investment Bank Research - 26 Feb 2020