This article first appeared in The Edge Financial Daily on August 24, 2018
Sunway Bhd
(Aug 23, RM1.58)
Maintain neutral with an unchanged target price (TP) of RM1.60: Sunway Bhd’s first financial half ended June 30, 2018 (1HFY18) core net income of RM262.2 million came in slightly below expectations, making up 43% of our and consensus full-year estimates. This was mainly due to lower-than-expected earnings from the Rivercove Residences project in Singapore following the adoption of Malaysian Financial Reporting Standard 15 (MFRS 15). Under MFRS 15, Sunway can only recognise development profit from the Singapore project upon its completion. A dividend of 3.5 sen per share was announced.
Sunway’s second quarter of FY18 (2QFY18) core net income increased marginally by 0.7% year-on-year (y-o-y), bringing cumulative earnings in 1HFY18 to RM262.2 million (+6.5% y-o-y). The growth in 1HFY18 earnings was driven by the property investment division’s higher earnings.
Operating profit of the property investment division increased 23.9% y-o-y, mainly buoyed by a higher earnings contribution from Sunway Velocity Mall. Meanwhile, operating profit of the property development division fell 18.2% y-o-y due to lower progress billings from local development projects.
Sunway recorded strong property sales of RM674 million in 2QFY18, bringing total new sales to RM840 million in 1HFY18. The strong sales in 1HFY18 were mainly contributed by the Singapore project, which made up 79% of total new sales. Meanwhile, Sunway has achieved its full-year new sales target as its year-to-date new sales have reached RM1.3 billion. Hence, we have revised our full-year new sales target to RM1.8 billion. Meanwhile, unbilled sales surged to RM1.5 billion from RM947 million, providing 1.3 years’ earnings visibility to the property development division.
We have revised downwards our earnings forecasts for FY18 and FY19 by -2.7% and -2.8% respectively due to the deferred earnings recognition from the Singapore project despite its strong sales. — MIDF Research, Aug 23