• Maintain BUY, with new TP of MYR2.65 from MYR2.67, 37% upside and c.3% yield. Sunway’s 3Q23 results were below our, but within Street estimates. 3Q23 earnings saw the recognition of development profit as Parc Canberra in Singapore was completed. Meanwhile, 9M23 property sales hit MYR2.09bn, well on track to achieve management’s MYR2.3bn target by December. Note, our TP is slightly lower as we removed the incremental value from Batu Kawan Industrial Park 2 in our RNAV estimate as the project has been called off.

• 3Q23 results. While property development division saw weaker EBIT as progress billings were slower among the local projects, other divisions all reported stronger earnings. We also highlight that, JV income during the quarter was much stronger, mainly due to the recognition of MYR46.3m development profit as Parc Canberra in Singapore was completed, as well as higher growth from the healthcare segment. Income from both Sunway Medical Centre (SMC) Sunway City and SMC Velocity was sufficiently strong and able to mitigate the start-up operational losses from SMC Penang and Sunway Sanctuary. Note, the share of start-up losses of SMC Penang has increased to MYR1.6m from MYR1.3m in 2Q23 (MYR2.2m loss in 1Q23), due to higher staff cost and depreciation charges.

• Singapore project driving FY23 sales. New property sales achieved MYR590m, vs MYR1bn in 2Q23. Of the 9M total sales of MYR2.09bn, projects in Singapore contributed MYR908m. Take-up rates for Terra Hills and The Continuum, launched in Feb and Apr this year, improved slightly to 39% and 33% (from 36% and 27% in 2Q23), possibly due to the tightening measures announced in 2Q23. For Malaysia, the key contributors were Velocity TWO (MYR229m) and Sunway Flora Residences in Bukit Jalil (MYR226m). Sales for a few projects launched this year saw encouraging demand. Take up rate (inclusive of bookings) for Sunway Flora, Sunway Dora in Bayan Baru, and Sunway Aviana in Iskandar Puteri reached 79%, 74% and 57%. Sales for Jernih Residence in Kajang and Sunway Alishan in Cheras, however, saw some marginal improvement, they are now 55% and 42% sold, vs 48% and 39% in 2Q23.

• Forecasts. We lower our FY23F-25F earnings by 3-7%. In the pipeline, Parc Central is expected to be completed in 1Q24, and the accumulated progressive profit from this project is now at MYR94.7m. Unbilled sales and outstanding construction orderbook stood at MYR4.64bn and MYR5.8bn vs MYR4.86bn and MYR5.8bn in 2Q23.

• Lower TP. Our TP, derived from a lower SOP valuation, includes a 8% ESG premium given our 3.4 ESG score for the company.

Source: RHB Securities Research - 23 Nov 2023