Price (30 May 13) RM2.75
Target Price RM3.57
Construction segment affected by temporary stop work order
Property segment key driver of earnings growth
RM366m property sales in 2QFY13 and RM2.3b unbilled sales as at end 2QFY13
Strong orderbook of RM4.2b for construction segment
Maintain BUY with slightly higher TP of RM3.57
Earnings slightly above expectation: Sunway Berhad (Sunway) registered core profit of RM201.1m in 1HFY13 which accounted for 55.8% of ours and 52% of consensus forecast. Earnings grew 41.7%yoy mainly attributable to strong revenue growth of 18%yoy as well as higher profit margin of 9.4% (7.8% in 1HFY12).
Stronger progress billing of property segment: Property segment’s 1QFY13 revenue grew 40.4%yoy to RM489.6m mainly attributable to stronger sales and construction progress of projects in Sunway South Quay, Sunway Damansara, Sunway Velocity and Sunway Eastwood. EBIT of property segment outpaced revenue growth, increasing by 60%yoy to RM127.4m, as a result of higher EBIT margin of 26% (22.7% in 1HFY12). Higher EBIT margin was possibly due to better product mix as well as higher contribution from property developments in Singapore.
Property sales improved: Sales increased from RM238m in 1QFY13 to RM366m in 2QFY13. Unbilled sales also increased slightly from RM2.2b as at end 1QFY13 to RM2.3b as at end 2QFY13. With cumulative sales of RM604m for 1HFY13, we believe Sunway is ontrack to meet their sales target. Sunway launched RM680m worth of projects in 1HFY13, which include Sunway Geo (RM373m worth of office suites & retail shops GDV), Sunway Cassia Penang (RM106m worth of 3 storey terrace house) and Sunway Lenang Heights (RM201m worth of Semi D & Bungalow).
Stable performance of property investment segment: EBIT of the property investment segment declined by 5.6%yoy to RM88.8m resulting from a flattish revenue growth and lower EBIT margin of 32.2% (34.3% in 1HFY12). Property investment segment’s revenue was RM275.3m in 1HFY13. The segment was impacted by the lower contribution from the hospitality business as a result of higher maintenance expenditure and purchase of hotel operating equipment.
Construction segment affected by LRT stop work order: Revenue and EBIT of the construction segment grew strongly on a cumulative basis in 1HFY13, increased by 24%yoy and 70.7%yoy to RM802.2m and RM44.4m respectively. Nevertheless, for the individual quarter of 2QFY13, revenue declined by 4%yoy and 13.2%qoq to RM372.8m while EBIT declined by 6.6%yoy and 37%qoq to RM17.1m. The construction segment was affected by the slight delay in the LRT project arising from the stop work order imposed on all contractors as a result of the accident at the work site of other packages not undertaken by Sunway. In addition, MRT project was also slightly project was also slightly delayed due to adverse weather conditions which resulted in slower progress billings.
Valuation: We believe Sunway’s strong earnings growth is sustainable for 2HFY13 as the construction segment will recover from the stop work order and adverse weather conditions. We are revising upwards our earnings forecasts by 11% and 6.5% respectively for FY13 and FY14 as we are expecting strong performance across all the segment. We reiterate our BUY recommendation with a slight increase of target price to RM3.57 (previously RM3.53) based on 15% discount to FD SOP.
Publish date: 30/08/13