(Upgrade from Hold)
KLCI : 1,703.78
Price Target : 12-Month RM 3.50 (Prev RM 3.40)
Attractive entry point
2Q13 earnings beat expectations
Record orderbook and strong unbilled sales
Next catalyst is launch of Medini, Iskandar
Upgrade to BUY, nudged up TP to RM3.50
Renewed optimism. We upgrade Sunway to BUY and nudged up TP to RM3.50 (10% discount to SOP), premised on the following: i) strong 2-3 years earnings visibility underpinned by its record construction orderbook (RM1.8bn contract wins YTD,
taking outstanding orderbook to RM4.2bn) and RM2.2bn unbilled sales anchoring our 3-year net profit CAGR of 11%; ii) credible Iskandar proxy with 1,858 acres of land (41% of SOP) and maiden launch by end-2013/early 2014; and iii) strong pricing power for key projects such as Sunway Velocity (GDV RM3.6bn) and Sunway Nexis (GDV RM1.5bn) which is able to capitalise on the current SBK MRT line.
2Q/1H13 results beat expectations. Sunway booked RM11m core net profit (+43% y-o-y, +22% q-o-q; excludes RM60m fair value gain from Sunway REIT), taking 1H13 core profit to RM201m (+42% y-o-y). This was driven by better performance from property development and construction divisions, with 1H13 EBIT jumping 61% and 71% to RM127m and RM44m, respectively. 1H13 property sales reached RM606m driven by new launches at Sunway Geo (GDV RM373m), Sunway Cassia (GDV RM106m) and Sunway Lenang Heights (GDV RM201m) which should meet its target of RM1.5bn assuming a stronger 2H. We expect construction earnings to pick up in 2H13 as 2Q13 was affected by delays in the LRT and MRT projects.
Raising earnings. We raised FY13/14/15F profits by 4%/6%/10% after adjusting for better-than-expected contract wins YTD. The stock has fallen 24% from its high and offers an attractive entry point currently. Valuations are inexpensive at 11x FY14F PE and 1.0x P/NTA, given decent earnings CAGR and assured earnings growth.
Publish date: 30/08/13