AmResearch: Sunway still a ‘buy’

PETALING JAYA: AmResearch Sdn Bhd maintained its ‘buy’ call on Sunway Bhd, with an unchanged fair value of RM3.74 per share, based on a 20% discount to the sum-of-parts value of RM4.65 per share.

Analyst Thomas Soon Guan Chuan said in his research report yesterday, the group is facing headwinds in its property development division, with a likely decline in sales in FY15F versus FY14’s RM1.7 billion (effective: RM1.3 billion) and its target of RM1.7 billion (effective: RM1.2 billion) for FY15F.

However, Soon said any blip in the group’s property revenue will not significantly hurt its long-term prospects, with unbilled sales at RM2.5 billion (effective: RM1.8 billion) as at end-March while its other divisions will cushion the impact.

For 1HFY15, the group posted RM500 million sales and targets the same for the second half.

Soon noted that the group’s construction unit Sunway Construction Group Bhd (SCG) will make its debut on the Main Market of Bursa Malaysia on July 28, of which Sunway will hold at least 51% of SCG.

He said the recent oversubscription of SCG’s institutional offer for sale by 4.6 times reflects the market demand for a pure-play construction group.

“Based on our FY15F PAT (profit after tax) projection and at a PE (price-earnings) of 13 times, SCG is valued at RM1.17 per share, in line with the IPO (initial public offering) price of RM1.20 per share,” he said, noting the construction stocks are currently trading at valuations of 12 times to 17 times PE multiples.

He pointed out that backed by its parent company, SCG can count on RM500 million to RM800 million worth of jobs annually, a robust domestic construction sector and Housing Development Board projects in Singapore.

“We are assuming an annual order book renewal of RM1.8 billion versus SCG’s target of RM2 billion,” he said.

As at end-March 2015, SCG’s outstanding order book stood at RM2.76 billion, which is 1.5 times FY14’s revenue of RM1.9 billion.

“We project FY15F-FY17F PAT at RM117 to 137 million. SCG will pay out at least 35% of profit, a yield of 2.6% for FY15.”

“Maintain ‘buy’ for long-term exposure to Iskandar Malaysia. Sunway is paying out a special dividend of 25 sen to 28 sen a share, translating into a yield of 7% to 8%, apart from an expected regular dividend of 10 sen a share,” he added.