KEY INVESTMENT HIGHLIGHTS

• 1HFY20 earnings below expectations hit by MCO
• 1HFY20 new sales at RM673m
• New sales target revised to RM1.1b
• Earnings estimates revised downwards
• Maintain BUY with a lower TP of RM1.50

1HFY20 earnings below expectations. Sunway Berhad (SUNWAY) 1HFY20 core net income of RM88.1m came in below expectations, meeting only 16% and 20% of our and consensus full year estimates. The earnings miss was mainly attributed to worse than expected impact on its business divisions from the commencement of Movement Control Order (MCO) in March 2020.

Earnings hit by MCO. 2QFY20 core net income plunged by 91.4%yoy to RM9.8m as earnings were hit by the commencement of MCO in March 2020. Note that we have excluded fair value loss of associate in our core net income calculations. Property investment division was worst hit by MCO as it suffered operating loss of RM10m in 2QFY20 due to the shutdown of its hospitality and leisure businesses during MCO. Similarly, healthcare division was also in the red after posting operating loss of RM12.1m in 2QFY20 due to lower number of admissions and outpatient treatments at Sunway Medical Centre. Meanwhile, operating profit of property development division fell by 36.6%yoy to RM13.7m due to suspension of construction activities during MCO. That brought cumulative earnings in 1HFY20 to RM88.1m (-70.8%yoy). Looking forward, we expect moderate earnings recovery in 2HFY20 as business operations resume in 3QFY20.

1HFY20 new sales at RM673m. SUNWAY chalked up low property sales of RM92m in 2QFY20 as compared to new sales of RM581m in 1QFY20 due to disruption to business activity during MCO. That brought cumulative new sales to RM673m. New sales from oversea projects in Singapore and China contributed 75% to total new sales while the remaining 25% were contributed by local projects. Meanwhile, total new sales of RM673m in 1HFY20 makes up only 34% of management new sales target of RM2b. Hence, management is revising downward its new sales target to RM1.1b from RM2b and lower target launches with total GDV of RM2.2b (previously RM3.5b) for FY20. Meanwhile, unbilled sales was unchanged at RM3.2b in 2QFY20, providing close to 6 years earnings visibility to the property development division.

Source: MIDF Research - 26 Aug 2020