Sunway - Cutting sales target and postponing launches

-  We reaffirm our HOLD rating on Sunway Bhd (Sunway), but with our fair value cut to RM2.60/share (from RM2.70share), pegged to a 25% discount to its revised sum-of-parts value of RM3.50/share (RM3.60/share previously).

-  The lower fair value is on the back of a lower new sales assumption for FY12F following management’s revisions in planned launches and the sales target for this year. We are looking at new sales of RM850mil-RM900mil for FY12F, vs. RM1.5bil previously. 

-  Last year, Sunway achieved RM1.9bil sales or about RM475mil every quarter on average. So far, the group has generated RM500mil new sales, some 38% lower than the same period last year. 

-  Sunway is now looking at RM1bil worth of new sales for FY12F, vis-a-vis its previous target of RM2bil on the back of continued subdued appetite for commercial properties, for which the buyers are mostly property investors who would likely be affected by the 70% LTV ruling.

-  The group is not going ahead with two key launches this year, i.e. commercial properties at Sunway Geo@Sunway South Quay and Sunway Velocity, which boast a combined GDV of RM500mil.  

-  The initial phase of Sunway Geo would comprise shop offices and retail suites, with a starting price of RM7mil. Meanwhile, the office suites at Velocity would be priced at an average RM820psf with unit sizes ranging from 650sf to 1,400sf.  

-  We keep our estimates unchanged for FY12F as a strong construction order book of RM4bil and property unbilled sales of RM1.7bil will keep earnings intact in the near term. But we have trimmed our projections for FY13F and FY14F by 2%-8% to RM385.5mil-RM405.4mil in light of the revisions in targets. 

-  Moving into 2HFY12, Sunway would focus more on landed residential properties and plans to launch RM500milRM600mil worth of residential properties in Penang and the Klang Valley. 

-  From a valuation standpoint, Sunway is currently trading at a steep discount (>30%) to its SOP value of RM3.60/share and at a cheap PE of 8x. While the stock appears attractive, there are no near term catalysts. 

Source: AmeSecurities