This article first appeared in Capital, The Edge Malaysia Weekly on January 24, 2022 - January 30, 2022

Fair value: 2.21 BUY

AMINVESTMENT BANK (JAN 19): We understand that most of the group’s strong FY21 sales was driven by its projects in Singapore, of which earnings contribution will only be recognised progressively from FY22 onwards, until completion and handover due to MFRS 15. Sunway plans to launch projects worth RM2.3 billion (-28% y-o-y) with a FY2022 sales target of RM2.2 billion (-16% y-o-y). The focus of the lower launch and sales targets will be local developments (59%), followed by Singapore (29%) and China (12%). On the local front, 59% of its residential products (high-rise) are set to be launched in Selangor and Kuala Lumpur (KL) areas, with 22% (landed properties) in Johor, 14% (townhouses) in Penang and 5% (townhouses) in Ipoh (Exhibit 1).

The adverse impact of the lockdowns on the leisure, hospitality and retail shopping malls segments was partly cushioned by the resilient performance in office space, as most tenants are multinationals who were less affected. However, we expect the segment’s losses to decline in 4QFY21 as the visitor pick-up in theme parks was significant despite shorter operating hours following the easing of movement restrictions in October 2021. This is further lifted by improved booking rates in the hotel segment and increased footfall in shopping malls which are supported by local tourists.

Sunway Medical Centre Velocity, which started operations two years ago, has begun to turn around to operating profitably from November 2021 onwards. The encouraging performance in this division is expected to grow further, underpinned by the potential synergy between Sunway Pharmacy and Multicare Health Pharmacy Sdn Bhd, which has nearly 90 outlets throughout Malaysia. The expansion plan of Sunway Medical Centre Towers D, E and F — together with Sunway Medical Centre Seberang Jaya, Penang — are expected to be completed in 2Q22 while the wards will be opened in phases from 2H22 with an estimated capacity of 798 beds.

We see that Sunway is well positioned to capitalise on the economic recovery coupled with the improvement in every segment across the group. Hence, we are optimistic about Sunway’s long-term outlook premised on its: (i) strong unbilled sales of RM3.8 billion (six times FY21 property development revenue); (ii) a robust outstanding order book of RM4.7 billion (2.8 times FY21 construction revenue); and (iii) the expansion plan in its healthcare business which could increase bed capacity by 82% in FY23.

Target price: 5.95 BUY

UOB KAY HIAN (JAN 19): CIMB’s management sounded fairly optimistic about the group’s recovery prospects. In fact, we gather pre-emptive provisions could be peaking in 4Q21, while the level of loans under repayment assistance is expected to decline at a swifter-than-expected pace by 2Q22. We remain positive on the group’s recovery prospects with CIMB expected to deliver the strongest earnings growth among peers.

The take-up rate for its URUS programme remains very low, comprising less than 1% of total Malaysian consumer loans (0.2% of group loans). The impact from the recent nationwide flooding in the form of flood relief assistance cost has also been negligible.

The group’s outstanding repayment assistance comprises 21% of total loans. As most of the loans under the PEMULIH moratorium programme are set to expire by 2Q22, management is expecting the overall group repayment assistance to decline sharply by 2Q22. As a baseline guidance, management is expecting the level of loans under repayment assistance to decline to 6% by 2Q22 However, given the expectation of a stronger and more sustained economic recovery, management is fairly optimistic that the level of repayment assistance could even drop lower than 6% by 2Q22 compared with the current 21%.

Target price: RM6.95 ADD

CGS-CIMB RESEARCH (JAN 19): Evidence is growing that the Omicron variant of the Covid-19 virus is less deadly than the Delta variant that raged through 2020, because Omicron is less adept at infecting and damaging the lungs, and because of higher vaccination coverage globally. A surge in Omicron infections around the world has not led to a similar surge in hospitalisations and deaths. As Omicron becomes better understood, we hope that border restrictions will gradually relax. For instance, Thailand is reportedly considering restarting its quarantine-free programme for vaccinated travellers, which was suspended on Dec 22, 2021, on Omicron fears. While we cannot predict the precise timing of border reopenings, the news flow on Omicron is providing some hope, and MAHB remains a good recovery play.

Other rerating catalysts for MAHB include the potential signing of the new operating agreement with the government of Malaysia, which may result in an increase in aeronautical tariffs. The Aeropolis development may also have its lease period set at 99 years, freeing it from the constraints of the airport concession, which ends in 2069. Meanwhile, Istanbul Sabiha Gokcen International Airport is negotiating for a deferral of the payment of its €115 million (RM546 million) concession fee due in January this year, while negotiating for a permanent waiver of the €115 million concession fee due in January 2021 that was previously deferred indefinitely.

Target price: RM1.35 BUY (Initiating Coverage)

HONG LEONG INVESTMENT BANK (JAN 19): Following a slew of corporate exercises in 1HFY21 that ushered in a new management team and business direction, DNeX has transformed itself into both a semiconductor front-end player/foundry and an upstream oil and gas producer in the UK’s North Sea region. We deem the group’s historical financial performance to be a premature representation of its future performance as the group has ushered in a new management team along with the acquisitions of new assets (60% of SilTerra on July 26, 2021, and an additional 60% of Ping Petroleum on June 30, 2021) — of which profits would only be reflected in FY22 onwards.

We are projecting DNeX’s core Patami to grow to RM155.2 million, RM197.8 million and RM271.5 million for FY22-FY24 respectively, representing a CAGR of 32%. This will be driven by: (i) the 60% acquisition of SilTerra; (ii) ASP hikes by SilTerra; (iii) increased stake in Ping Petroleum to 90% (from 30% previously), which will consolidate Ping’s financial performance into the group’s as it is now a subsidiary; and (iv) increasing oil production from Ping’s 50%-owned Anasuria Operating Co Ltd.

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