- We reaffirm our HOLD rating on Sunway Bhd (Sunway) with
our fair value unchanged at RM2.70/share, assigning a 25% discount to our
sum-of-parts value of RM3.60.share.
- Sunway’s 1QFY12 net income came in at RM64mil, which is
short of our, and street’s expectations covering only 19% and 18% of full-year
estimates, respectively. No dividend was declared for the quarter.
- Earnings slid by 35% QoQ on the back of a 15% drop in
revenue. This can be explained by slower progress billings, for which there was
a 34% drop in property development revenue. However, this was offset by
stronger profit recognitions from its Singapore projects.
- Similarly, the construction division was weaker QoQ –
margins down to 3% from 8% – as there was a strong contribution from its Abu
Dhabi projects in the previous quarter, while there was a slight delay in the
LRT extension works.
- However, we are sticking to our estimates, with the group
currently sitting on a record construction order book of close to RM4bil,
taking into account YTD contract wins and healthy unbilled sales of RM2.2bil.
Earnings should recover in the coming quarters as construction of its property
and infrastructure projects pick up pace.
- To recap, the group has already met its RM1.5bil order
book renewal target, with about 27% of the value consisting of in-house jobs,
i.e. substructure works for Sunway Velocity.
- Although Sunway is still in the mix for other MRT packages
(viaduct and station), we believe WCT and IJM are favourites for the station
works and having already won the V4 package, Sunway may find its chances
limited for any one of the remaining viaduct packages.
- Sunway is currently trading at quite a steep discount
(36%) to its SOP and one of the cheapest stocks in our conglomerate coverage –
trading at a CY12F PE of 9x vis-a-vis its peers of 17x. While the stock looks
attractive, there are no near term catalysts.
Source: AmeSecurities
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