Review

• Excluding the provision for impairment on investment in an associate, which amounted to RM3.1mn, Sunway reported a core net profit of RM475.0mn in 9M23. Results came within expectations, accounting for 71% of both our and consensus full-year estimates.

• YoY: 9M23 revenue increased 17% YoY to RM4.3bn, primarily due to higher contributions from all business segments except for the other segment. However, net profit for the period exhibited a more moderate growth of 13% YoY to RM475.0mn, mainly due to higher finance costs and tax expenses. Notably, the property development segment saw substantial growth, with a 27% revenue increase and a 68% surge in PBT. These increases were supported by strong sales and increased progress billing from ongoing and new local development projects, in addition to recognising a share of development profit of RM46.3mn from Parc Canberra, an executive condominium project in Singapore.

• QoQ: Sunway’s 3Q23 core net profit grew 18% QoQ to RM180.3mn on the back of a 5% increase in revenue. With the exception of the “others” segment, all business segments reported stronger PBT, with property development segment performance boosted by the recognition of the share of development profit of Parc Canberra. The property investment segment also recorded stronger performance, driven by an increased number of visitors to its theme parks and higher contributions from Sunway REIT.

• Sunway’s 3Q23 property sales grew 18% YoY but fell 41% QoQ to RM591mn. Year-to-date sales for 9M23 reached RM2.09bn, showcasing an impressive 46% increase YoY. Significantly, Singapore projects constituted 43% of the total sales in 9M23. The latest take-up rates for Terra Hills and the Continuum, launched in February and April, reached 39% and 33%, respectively, showing a slight increase from the 2Q23 figures of 36% and 27%. This subdued uptake aligns with expectations as the property market undergoes an adjustment period in response to the recent cooling measures implemented by the Singapore Government. Domestically, Sunway Flora Residence in Bukit Jalil (GDV: RM300mn) and Sunway Dora in Bayan Baru, Penang (GDV: RM70mn), both launched in March 2023 and February 2023 respectively, achieved robust take-up rates nearing 80% – see Figure 1.

Impact

• No change to our FY23-25 earnings forecasts. Our FY23/24/25 sales assumptions are RM2.4bn/RM2.5bn/RM2.6bn, respectively.

Outlook

• Sunway maintains its new sales target of RM2.3bn this year, although it appears highly likely that the group will surpass this target, considering that 9M23 sales already constitute 91% of the target. The upcoming focus remains on enhancing take-up rates for ongoing and recently launched projects.

• With unbilled sales of RM4.6bn and an outstanding construction order book of RM3.7bn (external jobs only), Sunway has earnings visibility for the next 3-4 years.

• We believe the strengthening domestic economy augurs well for Sunway going forward. In particular, Sunway’s leisure, hotel, and healthcare segments are expected to benefit from the improvement of the inbound leisure tourism and medical tourism sectors as international travel continues to normalise.

• In the coming years, we expect the completion of the Rapid Transit System (RTS) rail link and the potential establishment of the Johor Singapore Special Economic Zone to bode positively for Sunway City Iskandar Puteri. Positioned strategically between Puteri Harbour and the Second Link to Singapore, this flagship township development is expected to thrive. The positive sentiment is already evident in the strong sales performance of Sunway Aviana, a landed development within Sunway City Iskandar Puteri, launched in October 2023, achieving an impressive 57% take-up rate.

Valuation

• We maintain Buy on Sunway with an unchanged TP of RM2.40, based on SOP valuation.

Source: TA Research - 23 Nov 2023