(May 23, RM1.68)
Maintain buy with a lower fair value of RM1.94: Sunway Bhd reported its first quarter of financial year 2019 (1QFY19) revenue and profit after tax and minority interests (Patmi) of RM1.12 billion (-14.1% year-on-year [y-o-y]) and RM136.4 million (+11.9% y-o-y) respectively. Patmi of RM136.4 million constituted 22% of both our and consensus full-year estimates. Nonetheless, we reckon this to be in line with expectations as Sunway’s earnings are generally lower in 1Q.
The property development division’s 1QFY19 revenue came in at RM87.9 million (-33.6% y-o-y) while its profit before tax (PBT) was RM32.8 million (+19.6%). The lower revenue is mainly due to lower sales and progress billings from local development projects while the stronger PBT is attributed to the reversal of provisions made in the previous year. Nonetheless, Sunway reported stronger new sales of RM263 million (+58% y-o-y) while unbilled sales of RM2.2 billion (y-o-y: RM947 million; quarter-on-quarter: RM2.1 billion) will provide good earnings visibility in the short-to-mid term.
The property investment segment recorded 1QFY19 revenue of RM196.7 million (+1.9% y-o-y) and PBT of RM57.4 million (+0.5% y-o-y) mainly due to a higher contribution from Sunway Geo in Sunway South Quay, as well as improved contribution from the group’s theme parks.
The construction segment posted 1QFY19 revenue and PBT of RM346.2 million (-22% y-o-y) and RM43.7 million (+5.4% y-o-y) respectively. The weaker revenue was mainly due to lower progress billings from local construction projects and higher intra-group eliminations. Meanwhile, the higher PBT was boosted by lower intra-group profit eliminations. Year to date, Sunway Construction has secured new jobs worth a total of RM1.01 billion while its outstanding construction order book stands at RM5.7 billion.
The healthcare segment chalked up 1QFY19 revenue of RM126.8 million (+24.4% y-o-y) and PBT of RM15.4 million (+43.4% y-o-y), contributed by higher occupancy from increased number of new beds and higher outpatient treatments.
We reduced our FY19 to FY21 earnings forecasts by 1.9%, 1.7% and 1.5% respectively following our recent earnings downgrade on Sunway Construction. Nevertheless, we believe the outlook for Sunway remains positive premised on its unbilled sales of RM2.2 billion, strong income contribution from property investment and a robust outstanding order book of RM5.7 billion. — AmInvestment Bank, May 23