Sunway Bhd -
Catalysts shifts to construction
Sunway's annualised 9M13 core net profit was 6% above our full-year forecast and 9% above consensus. The results were above expectations as we had underestimated the associates' contribution. Sunway's fundamentals are good, with improved earnings prospects for construction in the medium term. Maintain Outperform.
We raise our FY13-15 EPS forecasts. Although we roll over to an end-2014 valuation, our RNAV/share drops by 4.4% as we update our balance sheet items and impute SunReits's lower market value. Our target price is lowered, still based on a 20% RNAV discount. The catalysts now shift to construction, with order book growth driven by domestic jobs. The stock's deep value continues to be supported by its huge land bank.
Construction and property drivers
Sunway's annualised 9M13 core net profit was 6% above our full-year forecast and 9% above consensus. The results were above expectations largely due to the stronger-than-expected associates' contribution (Singapore property ventures). 4Q13 net profit is likely to be stronger, driven by healthy effective unbilled property sales of RM1.8bn. 9M13 total revenue rose by 20%, thanks to the 30-48% growth in property development and construction revenue. 9M13 EBIT margin was 7.7%, up 2.4% yoy, supported by the steady 5-29% margins for the construction and property segments. The absence of dividends in 3Q13 was no surprise.
Property strategy intact
Domestically, Sunway's property sales target of RM1.3bn could be exceeded, given its strong unbilled sales. Total launches amounted to RM1.7bn at end-Nov 2013, including RM555m from Novena in Singapore. We expect this to mitigate the earnings risks from the likely "cooling-off" period for the Iskandar property sector, which is expected to materialise in 2H14 earnings.
Construction in play
Sunway's outstanding order book of RM3.7bn (RM2bn total wins YTD) is the highest in our construction universe. We expect further upside from domestic building jobs in 1H14.
Publish date: 02/12/13