Sunway Bhd -
Aggressive job flow target
Sunway revealed during our Malaysia Corporate Day yesterday that it is targeting to secure RM2.5bn worth of new jobs this year, a positive surprise. This is on top of MRT 2 and driven by domestic building works. Property prospects continue to look good over the longer term, backed by its massive land bank in Iskandar. Our target price remains based on a 20% discount to RNAV. The stock's deep value arising from its huge domestic land bank is intact. Catalysts in 2014 hinge on positive news flow on job awards and more land banking. Two large tracts are currently in its sights. Maintain Add.
What Happened .
Management reiterated positive outlook for 2014. Sunway participated in our Malaysia Corporate Day yesterday. Management presentations, led by group president Dato' Chew Chee Kin, were given at eight small group sessions for over 30 fund managers. Key takeaways: 1) The 2014 construction outlook is likely to be better than 2013, with RM2.5bn targeted new jobs this year, higher than 2013's RM2bn. 2) Major job awards will be driven by building projects. The success rate is likely to be high given its track record and enhanced cost competitiveness due to post-merger synergies. 3) Medini in Iskandar is exempted from the RPGT and the minimum threshold for foreign purchases. Margins for upcoming launches in Medini should be attractive as land cost is low. 4) The group is working on acquiring two "sizeable" new land banks but details are limited.
What We Think
Catalysts shift to construction. While there were no major surprises on the property side, the key positive surprise was the RM2.5bn targeted new jobs in 2014. Although this includes internal works (est. RM500m), it is still an aggressive target and looks achievable given last year's strong order flow. Its tender book is focussed on the building segment, with likely job wins in 1H14. We understand from the meetings that property developments in Medini (Iskandar) will be exempted from the RPGT and the minimum threshold for foreign purchases. This is positive and a reprieve for the group's medium-term prospects in Iskandar.
What You Should Do
Accumulate. The RM2.5bn new jobs targeted this year should translate into positive news flow starting in 1H14. Potential new land banks beyond Iskandar present upside to RNAV.
Publish date: 09/01/14