AmWatch - Sunway : SunCon soon to re-emerge from its shadow BUY, 30 Mar 2015

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Sunway : SunCon soon to re-emerge from its shadow    BUY

We maintain BUY on Sunway, with a higher fair value of RM3.95/share (vs. RM3.60/share previously), based on a 20% discount to our upward revised SOP value of RM4.93/share. We have incorporated additional investment properties to the SOP, including the recently completed RM340mil Sunway Pinnacle. We understand the Pinnacle (mainly offices) is currently above 50% occupied and it should rise to 75% by year-end.

For FY15F, Sunway is targeting launches worth RM2bil (effective RM1.5bil), with prospective sales of RM1.7bil (effective RM1.2bil). Additionally, its effective unbilled sales as at end-Dec 2014 amounted to RM1.9bil – 1.6x of FY14 property sales. We expect property revenue to grow by ~9% for each of the next two years to RM1.3bil and RM1.4bil, respectively (vs. RM1.2bil in FY14).

Apart from external jobs, its subsidiary Sunway Construction Group (SunCon), which will be listed in early 2H15, will benefit from the parent’s steady flow of property projects with a combined potential GDV of ~RM50bil. SunCon is reportedly among six parties shortlisted for the PDP role for the RM9bil KV LRT Line 3. As at end-Dec 2014, SunCon’s outstanding order book totalled RM3.06bil (mostly spread over the next two years), including RM1.93bil of external jobs. SunCon is targeting RM2.5bil worth of job replenishment for FY15F vs. RM1.1bil secured in FY14. We are assuming a renewal of RM2.2bil for FY15F and at RM1.8bil p.a. for FY16F-FY17F.

We maintain our FY15F and FY16F earnings. At 90%-95% of cash proceeds of RM390mil-RM445mil (@RM1.07/SunCon share), the cash dividend could amount to 16 sen-25 sen/Sunway share. Pursuant to a dividend-in-specie, shareholders will also get one SunCon share for every 10 Sunway shares held. The listing of SunCon will bring about greater clarity in the internal jobs provided by SunCon to Sunway. For Sunway itself, the recurring income from its investment properties can partly cushion any shortfalls in the event of a drastic downturn in development projects. 

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