Sunway Bhd - Selldown Overdone; Upgrade to BUY

By Maybank IB Research
29 Aug 2012

An overdone hammering. 1H12  results  were below expectations. However,  earnings should pick up in  2H on stronger work progress (construction) and  investment properties performance. We  lower our earnings forecasts by 2-6% p.a. but raise TP to MYR2.68 (+6sen; 40% discount to MYR4.46 RNAV).  Sunway currently trades at 7.1x  FY13 PER and  a  50% discount to RNAV. We believe the  stock selldown brought about by slower property sales is overdone. Upgrade to BUY.


Slower property sales. Excluding MYR77m in fair value gains, 2Q12 net profit of MYR77.6m (+0.9% YoY, +21% QoQ) lifted 1H12 core net profit to MYR141.8m (7.2% YoY),  accounting for 38-40% of our and consensus full-year estimates.  The earnings gap was due to slowerthan-expected property sales and progress billings. Sunway has locked in MYR618m in  effective property  sales in 1H12 (or  44% of its  initial sales target of MYR1.4b for 2012 vs. actual 2011 sales of MYR2.1b).

Lowering sales target. Sunway has guided for a lower 2012 property sales target of MYR800m due to the slowdown in the property market (particularly for high-end properties) and fewer launches in Singapore.
We think this is overly conservative given the 1H12 sales of MYR618m, strong take-up  at  its  Sea Esta  project in  Pasir Ris,  Singapore, and encouraging booking rates at Velocity Designer Suites.

Encouraging take-up. Half of its 1H12 sales are derived from the 30%-owned  Sea Esta  project in Singapore (SGD107m in  effective  GDV; SGD885psf ASP). The project, launched in  Jun 2012, is 80%-sold  to date. Meanwhile, the MYR204m Velocity Designer Suites (retail shops – MYR1,400 psf and designer offices  – MYR750psf) has been  40% booked since the soft launch in Jul 2012. It also plans to launch its Sunway Geo at Sunway South Quay (MYR300m in GDV) in Sep 2012.

Earnings downgrade. We downgrade our earnings forecasts by 2-6% p.a. on slower take-up and progress billings assumptions. Our  new property sales forecast for 2012 is MYR1.07b. However, we  lift our RNAV to MYR4.46 (+9sen) to factor in a new MYR1.53 TP (+13sen) for SunREIT. Short-term earnings visibility is decent, backed by MYR1.8b unbilled sales (1.3x of our  FY13  forecast) and  an outstanding construction order book of MYR3.6b.

Buy (from Hold)

Share price: MYR2.25
Target price: MYR2.68 (from MYR2.62)

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