AmWatch - Sunway : Halves property launch target to RM1.05bil BUY, 23 Oct 2015

STOCK FOCUS OF THE DAY

Sunway : Halves property launch target to RM1.05bil      BUY

We maintain BUY on Sunway, with a lower fair value of RM3.54/share (vs. RM3.74/share previously), based on a 15% discount to our SOP value of RM4.18/share. Our fair value represents an implied PE of 11x FY15F – +2STDV above its historical 5-year forward PE mean of 8x.

Sunway has halved its property launch target for FY15 to RM1.05bil (effective: RM896mil) from RM2.0bil (effective: RM1.5bil) previously. It now targets sales of RM1bil (effective: RM750mil) vs. RM1.7bil (effective: RM1.2bil) earlier. Sunway said it has revised its targets downward due to a cautious market. Property sales were registered at only RM478mil (effective: RM353mil) in 1HFY15, in the absence of launches during that period. We maintain our earnings forecasts for now. Mitigating the slowdown in property development was an unbilled sales of RM2.3bil (effective: RM1.7bil) as at end-June 2015. Earnings could also be propped up by its listed subsidiary Sunway Construction Group Bhd (SCG), whose current outstanding order book is now well over RM4bil.

SCG recently secured a RM1.61bil contract with Putrajaya Bina S/B for the construction of government office buildings. That brought the total secured so far this year to RM2.2bil – far exceeding our new order assumption of RM1.8bil for FY15F. In a later award, SCG garnered a RM175mil contract with another Sunway unit Sunway Iskandar Sdn Bhd, for the construction of 222 linked houses, cluster homes and semi-detached houses in Johor Bahru. Recall, Sunway posted 1H15 net profit of RM267mil (+13% YoY), which came in within expectations, on the back of an already strong performance at its construction division. Compared with its peers, Sunway’s valuations continue to lag and are undemanding (see Exhibits 4-6 on page 4). Reiterate BUY for its healthy construction outstanding order book and exposure to the iconic Sunway Iskandar development, whose longer-term prospects remain intact

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