Recovery gaining momentum
? 1QFY22 results were in line; core net profit surged 168% yoy.
? Recovery was anchored by stronger construction billings and property sales
with a robust turnaround for the property investment division.
? Reiterate Hold rating with a higher TP (20% RNAV discount).
Robust recovery indicators in 1QFY22; results in line
Sunway’s recovery indicators were robust in 1QFY22 with all divisions benefiting from the
full economic reopening, turnaround in domestic tourism and hospitality activities, higher
tail-end construction profit for completing projects and higher billings for property
development. In 1QFY22, the group also recognised RM28.2m in pretax profit for its
Sunway Healthcare Group (SHG, 84% stake) post divestment of its partial stake. 1QFY22
core net profit of RM120m (largely excluding the RM14.4m gain from the remeasurement
of stakes in Sunway Velocity Two and Sunway Artessa) was in line, at 25-28% of our and
consensus full-year estimates. 1Q22 revenue grew 32% yoy, anchored by double-digit yoy
growth rates for all divisions except trading and manufacturing (hit by weaker sales from
China due to Covid-19 lockdowns). 1QFY22 core net profit surged 168% yoy, driven by
the strong associate/JV earnings from property investment and lower tax rates. No
dividends were declared, which was expected.
All divisions on growth path; trading and manufacturing weak
In line with stronger billings, property sales, and the recovery in tourism and hospitality
sectors, all key divisions recorded double-digit yoy revenue growth in 1QFY22, with the
property investment division chalking up a 106% yoy increase, property development
+63% yoy and construction +15% yoy. The construction division booked in higher pretax
margin of 13% (1Q21: 9%) on final certification of completed jobs, although we anticipate
softer margins in the quarters ahead in view of the rising building material prices.
Outstanding order book remained at a healthy level of RM4.4bn. The property development
division’s performance was driven by stronger domestic sales and billings and high
progressive profit recognition from condo projects in Singapore. Sunway achieved
RM400m in effective property sales and targets RM2.2bn in property sales in FY22F on
the back of RM2.3bn worth of new launches and unbilled property sales of RM3.7bn.
Trading and manufacturing was the weakest performer due to weak overseas sales.
Reiterate Hold; raise TP to RM1.86
Our FY22-24F EPS estimates are unchanged. We retain our Hold rating but raise TP to
RM1.86 (unchanged 20% RNAV discount) as we update for balance sheet items and
higher market capitalisation of listed units. Upside risks: larger-value contract wins for
Sunway Construction from RM31bn MRT 3 civil works tier 1 tenders and a strong
turnaround in the property investment division. Downside risk: weaker earnings.