SUNWAY BHD

By Kenanga Research Rating: Outperform Target price: RM1.82

SUNWAY Bhd’s nine-month core net profit of RM398.9mil was in line, making up 76% and 71% of Kenanga Research’s and street’s full-year estimates.

The research firm said Sunway’s nine months of 2017 property sales of RM583mil appeared sluggish compared with the house and management’s full-year target of RM1.1bil.

“We deem it is still on track, banking on a strong fourth quarter 2017 where the bulk of its new launches of RM1.1bil are skewed towards late third quarter 2017.

“Furthermore, most of its launched projects have achieved estimated take up rates of 50%,” Kenanga said.

Kenanga explained that Sunway’s core net profit grew 6% year-onyear (y-o-y) underpinned by a 9% growth in revenue, 7% reduction in net financing cost, decline in minority contributions by 24% and improvements in associate/joint controlled entity as well as lower effective tax rate of 15%.

On a positive note as well, Kenanga said Sunway’s net gearing also came down to 0.37 times vis-à-vis 0.46 times back in 2Q17 due to proceeds from the conversion of Esos and lower net borrowings.

Going forward, the house is confident that Sunway would be able to deliver its forecast earnings and targeted sales of RM1.1bil for the year.

“This is premised on its property unbilled sales of RM0.9bil with 1.5-year visibility, a vigorous outstanding order book of RM6.8bil that provides two to three years visibility and other divisions that have been generating decent growth.

“As for its property sales, we are expecting a strong performance in the fourth quarter of 2017, given that most of the new local launches have achieved take up rate of 50%, coupled with an unsold gross domestic value (GDV) of RM400mil,” the house noted.

Kenanga made no changes to its financial year 2017 (FY17) to FY18 forecast core net profit of RM522mil to RM543mil.

It upgraded Sunway to “outperform” from “market perform” as the share price has retraced in line with weak market sentiment and overreactions to negative news flow.

Kenanga’s sum-of-parts-driven target price of RM1.82 remained unchanged.

Risks include weaker-than-expected property sales and construction replenishment, higher-than-expected administration costs, negative real estate policies and tighter lending environment.