SUNWAY (FV RM3.31 - BUY) 1QFY12 Results Review: All is Good

While Sunway’s 1QFY12 core net profit only made up about 18% of our and consensus’ FY12 net profit forecasts, we view the results as largely in line with our expectation due to seasonal factors as we see stronger performance  in  the remaining quarters.  We maintain our forecast and Buy call on Sunway, at an unchanged FV of RM3.31, at a 20% discount to our SOP RNAV valuation. Sunway is  our top pick among mid- to big-cap property companies,  backed by its attractive valuation and relatively defensive earnings from its property investment segment.

Within projections. Sunway’s core net profit of RM64.2m for 1QFY12 accounted for about 17.8% and 18% of our and consensus FY12 net profit forecasts respectively. Nevertheless, we deem the results in line with our expectation due to seasonality in 1QFY12, attributed to the fewer working days and festive season. We also expect higher progress billings from its property development business and higher revenue recognition in the construction division to boost the group’s performance in the remaining quarters. Revenue dipped 2.3% y-o-y due to slower progress billings from its ongoing property projects and lower sales of completed units. Despite the marginal revenue contraction, the group’s core net profit for 1QFY12 was still 15.8% higher y-o-y to lower MI charges as most of the profits were generated by its wholly owned subsidiaries. Seasonal factors led to the 1QFY12 results being significantly lower q-o-q.

Performance by segment. Collectively, its property development and investment divisions are the biggest contributors to topline, accounting for about 35.7% of total revenue, followed by the construction division, which contributed about 31.8% of revenue. However, due to the higher margin commanded by its property development division and dividend income from Sunway REIT in the property investment division, the two divisions collectively contributed some 76.7% of the core net profit, while the construction division made up about 9.1% of group bottomline. We think this was partly attributed to delays in the commencement of some major construction contracts such as the LRT extension. As at end-1QFY12, Sunway’s effective unbilled sales stood at about RM1.7bn. Meanwhile, its construction orderbook currently stands at about RM4bn, boosted by the recent award of MRT package V4 contracts valued at about RM1.17bn.

Maintain Buy. We maintain our forecast and Buy recommendation on Sunway at an unchanged FV of RM3.31, based on  a  20% discount to our SOP RNAV valuation. Sunway is our  top  pick  among  mid-  to  big-cap  property  companies,  backed by  its  appealing  valuation  and  relatively defensive property investment  earnings. Adding  to  the  stock’s  allure  is  its  construction  division’s  strong  orderbook replenishment.

Source: OSK