Sunway Bhd
(Feb 11, RM3.35)
Maintain buy call with a lower target price (TP) of RM3.80. We trim financial year 2015 (FY15) and FY16 (forecast) earnings by 7% after reducing order book replenishment to RM1 billion for FY14 (against an assumption of RM2 billion).

This also nudges down our sum-of-parts-derived TP to RM3.80. We continue to like Sunway for its superior and unrivalled “build-own-operate” model.

Sunway’s focus on sustainable township development has resulted in stable property sales (RM1.7 billion to RM1.8 billion in FY12 to FY14).

It is targeting RM1.7 billion sales in FY15 on the back of RM2 billion worth of launches.

The market will be more challenging this year, but the RM2.8 billion worth of unbilled sales as at Sept 30, 2014 will provide earnings visibility for the next two years.

Sunway Construction Group Bhd (SunCon) may be listed by June. The initial public offering price is yet to be fixed but we estimate SunCon to be worth RM1.5 billon assuming RM100 million profit in FY14 and 15 times price-earnings ratio (PER).

This could prompt the payment of special cash dividends of RM395 million (about 23 sen per share) for Sunway’s shareholders, in addition to free SunCon shares which could be worth 12 sen per share. This suggests about 10% yield for Sunway shareholders.

Sunway Pyramid 3, the new academic block for Sunway University and Sunway Velocity Shopping Mall will be completed by end-2015.

This will continue to underpin Sunway’s growing recurring income. This sizeable portfolio will also ensure a strong injection pipeline for Sunway real estate investment trust. — AllianceDBS Research, Feb 11

This article first appeared in The Edge Financial Daily, on February 12, 2015.