This article first appeared in The Edge Financial Daily on October 16, 2018

Sunway Bhd
(Oct 15, RM1.39)
Maintain buy with a lower fair value of RM1.65: We have reduced our financial year 2018 (FY18) and FY19 earnings forecasts to RM576.2 million (-6.5%) and RM590.5 million (-11.2%) respectively for Sunway Bhd, and introduced our FY20 earnings forecast of RM612.1 million.

Sunway was reclassified from property to the trading/service sector on Bursa Malaysia on June 16, 2017 to reflect its strategic ambition to grow into non-property-related businesses. At present, Sunway’s businesses are diversified mainly into integrated property (property development, property investment, hospitality and leisure), construction as well as investment (trading and manufacturing, quarry and building materials, healthcare and others).

Presently, the property development division has several ongoing projects with a remaining land bank of 3,308 acres (1,339ha) bearing a total gross development value of RM54.4 billion, giving it long-term earnings visibility and driving the company’s growth going forward. The unbilled sales of RM1.4 billion, together with a slew of new launches in FY18 to FY19, will boost its revenue in the near term. Meanwhile, the strong portfolio of investment properties in the retail, hospitality, healthcare, office and education sectors provides a strong recurring cash flow to the group.

Sunway Construction Group Bhd’s outstanding order book now stands at RM5.6 billion, indicating stable income for the construction division over the next one to two years.

The group is expanding its healthcare business with plans to build four more hospitals. The new hospitals will be within its integrated developments in Sunway Velocity Mall, Seberang Jaya, Sunway Damansara and Sunway City Ipoh. The Sunway Velocity hospital is currently under construction, which is expected to be completed by the first quarter of 2019.

The group’s trading and manufacturing business serves close to 13,000 active customers from a diverse range of industries. These include construction, marine, oil and gas, mining, agriculture, manufacturing, logging and quarrying through strategic and vast distribution points located throughout Asia, including more than 50 offices in China, Thailand, Indonesia, Singapore, Australia and Malaysia.

We believe the outlook for Sunway shall remain stable premised on its strong unbilled sales of RM1.4 billion, a robust outstanding order book of RM5.6 billion, expansion in healthcare business, and stable income from property investments and other divisions. — AmInvestment Bank, Oct 15