Last Traded: RM2.75
Outperformance Driven by Strong Progress Billings
_ Sunway Berhad’s (Sunway) 1H13 core net profit (excluding fair value gain and gain on derivatives) of RM201.1mn beat analysts’ expectations. The outperformance can be attributed to stronger-than-expected progress billing from the property development division and higher revenue from trading & services and quarry divisions.
_ An interim single tier dividend of 5sen/share was declared for this quarter. Note that Sunway’s board has decided to pay dividends on a semi-annual basis with effect from FY2013 onwards. We are mildly positive on this new dividend policy.
_ 2Q13 net profit grew 42.7% YoY to RM110.7mn on the back of 12.2% growth in revenue as well as margin improvement (PBT margin grew 2.8ppt YoY). Driven by strong progress billings from the property development division, the group has chalked up net profit growth of > 40% YoY for 2 consecutive quarters (1Q13 net profit rose 41%). This has resulted in the cumulative 6-month net profit surged 42% YoY to RM201.1mn.
_ QoQ, 2Q13 net profit grew at a faster pace than revenue, thanks to higher EBIT margin (+1.1% QoQ to 13.7%) and lower effective tax rates (-6.2ppt). Note that EBIT margin continued to expand due to favourable product mix and healthy price appreciation for its existing projects.
_ Given the stronger-than-expected 1H13, we raise our FY13-15 earnings by 8-10% after factoring in 1) higher revenue contribution from trading & services and quarry divisions and 2) change in progress billing assumptions in property and construction divisions.
_ Sunway recorded new sales of RM368mn in 2Q13 (effective sales RM288mn), bringing the YTD new sales to RM606mn (effective sales RM492mn). Although new sales were lower than 1H12’s new sales of RM674mn, we deem the sales performance was commendable in view of lack of sizable new launches in 1H13. Key projects which have contributed to improving quarterly sales include Sunway Vivaldi @ Mont Kiara, Sunway Eastwood @ Puchong and Sunway Cassia @ Penang. Unbilled sales remains healthy at RM2.2bn (effective RM1.8bn), which will keep the group busy over the next two years.
_ We believe the group is on track to meet both its sales target and our sales assumptions of RM1.1bn and RM1.2bn respectively. Sales will likely to pick up in 2H as new launches are scheduled to come to the market from July-13 onwards. YTD, the group has launched RM680mn worth of new properties and has further lined up RM650mn and SGD950mn worth of launches in Malaysia and Singapore respectively for the remaining of the year – see Table 1. Recently, the group has soft-launched the first phase of Lenang Height @ Johor (GDV: RM201mn) and garnered 50% take-up thus far. Elsewhere, retail shops and flexi suites within the Sunway Geo development also registered take up rate of 90% and 75% respectively.
_ On the construction front, Sunway has secured new jobs worth RM1.3bn – see Table 2. These jobs have boosted its order book to RM3.3bn (excluding in-house works), providing 2-3 years earnings visibility for the group’s construction division (at 2.1x our projected FY14 construction revenue). According to management, performance of the construction division were affected by the stop work order imposed on all contractors arising from the accidents occurred at the work site of Kelana Jaya LRT extension project. Meanwhile, the progress of the MRT project was also delayed slightly due to adverse weather conditions which resulted in slower progress billings. However, management assured that the construction progress for both projects still well within the targeted timeline.
_ In tandem with the change in earnings projections, our SOP-derived target price is nudged up slightly to RM3.83/share (from RM3.79/share) – see Table 3. We reiterate our Buy recommendation on Sunway as we continue to like its 1) clear earnings visibility underpinned by strong unbilled sales and order book; 2) large presence in Iskandar Malaysia should continue draw investors’ interest; and 3) construction expertise should benefit from domestic infrastructure boom with various mega infrastructure works in the pipeline.