• Maintain BUY, with new MYR4.00 TP from MYR3.53, 9% upside and c.2% yield. Sunway’s 1Q24 results missed estimates. However, we expect earnings in the coming quarters to be stronger driven by the handover of Parc Central in Singapore as well as higher progress billings from the construction segment. Earnings visibility is good given its higher unbilled sales and construction orderbook. Our higher TP reflects our latest TP for Sunway Construction (SCGB MK, BUY, TP: MYR3.81) and we also roll-over our valuation to FY25F for Sunway Healthcare Group.

• 1Q24 results. Revenue dropped QoQ as 4Q is typically the strongest quarter for the company. Meanwhile, the healthcare segment saw a drop in PBT margin (from 17% in FY23 and 14% in 1Q23 to 13% in 1Q24), as patients delayed elective surgeries due to festivities, while operating cost related to expansion (including new recruitments and interest expense) was also higher. Note that Sunway Medical Centre (SMC) Penang already achieved breakeven at the PAT level in 4Q23. Meanwhile, SMC Damansara and SMC Ipoh are targeted to open in 4Q24 and 1Q25, adding 600 beds to the current capacity of 1,158 beds.

• Decent sales in 1Q24. New property sales reached MYR498m vs MYR350m in 4Q23. Sales during the quarter was mainly contributed by Belfield (MYR72m), Aviana (MYR62m), Lenang (MYR62m) as well as two projects in Singapore (MYR117m). Sales for Terra Hills and The Continuum in Singapore picked up slightly, from 39% in 4Q23 to 42% and from 37% to 42%. Projects in Johor continued to see encouraging sales. The bungalow and semi-d units in Sunway Lenang Heights launched in Nov 2023 are now 61% and 17% sold (from 58% in 4Q23 for the bungalows). Sunway Aviana terraces have also achieved 100% and 91% sales for Phases 1 and 2 (from 99% and 83%). Sales at Jernih Residence in Kajang also improved from 59% and 29% to 71% and 55% for Tower A and B. In the pipeline, major launches include Kelana Jaya Phase 2 (GDV: MYR455m), Sunway V3 Tower A (GDV: MYR566m) and landed homes in Sunway Iskandar Puteri (GDV: MYR280m). Sunway should be able to hit its MYR2.6bn sales target by year end. The executive condominium project at Tengah Plantation Close Singapore is slated for launch in FY25.

• Forecast. We make no changes to our earnings forecast. We expect 2Q24 earnings to be stronger as Parc Central is expected to be completed in 2Q, and the accumulated progressive profits from this project is now amounted to MYR120m. 1Q24 unbilled sales and outstanding construction orderbook stood at MYR4.2bn and MYR6.3bn (vs MYR4.06bn and MYR5.3bn in 4Q23).

• Higher TP. Our SOP valuation includes a 8% ESG premium.

Source: RHB Research - 23 May 2024