24 April 2012
Sunway property sales weaker due to 70% loan-to-value ruling introduced in November last year, fair value RM2.70 - AmResearch
(SUNWAY opening stock price today (24.4.2012) was RM2.48)
Maintain hold at RM2.52 with fair value of RM2.70: We reaffirm our “hold” recommendation on Sunway Bhd with our fair value cut to RM2.70 per share (from RM2.85 previously), assigning a 25% discount to our revised sum-of-parts (s-o-p) valuation of RM3.60 as we assume slower property sales for FY12F and FY13F.
The key highlight from our meeting is that Sunway has become more cautious on the property sector. We understand YTD sales have been subdued with Sunway recording new sales of only RM100 million (up to February) against about RM200 million achieved in the corresponding period last year. Sales have been largely driven by terraced units in Shah Alam, commercial units at Nexis and Singapore products.
It seems the weak sales were largely due to the 70% loan-to-value ruling introduced in November last year. This is not a surprise as Sunway’s pricing for its products has always been on the high side and 70% of its planned launches are priced at least RM1 million per unit. We acknowledge that its developments are mostly in favourable locations.
As a result, the group has deferred its initial 2012 launches to 2Q12. Among the key launches deferred are the commercial properties in Sunway South Quay — 31 units of 3-storey shopoffices priced at RM6 million and above — Sunway Montana in Desa Melawati and commercial properties in Penang.
We therefore believe it may be a challenge for Sunway to meet its RM1.9 billion sales target this year. We have cut our new property sales assumption by 20% to 25% to RM1 billion to RM1.5 billion for FY12F/FY13F. Consequently, we have slashed our earnings by 4% to 5% for FY12F/FY13F to RM344.2 million to RM417 million.
Having said that, the group is sitting on a healthy construction order book of RM2.8 billion and property unbilled sales of RM2.2 billion.
We are quite positive on Sunway’s chances of winning one of the remaining MRT packages, given that it has the cost advantage over its competitors due to its in-house piling capability.
We note that piling accounts for 20% to 30% of the elevated package or about RM200 million to RM300 million. Thus, we do not believe it would be an issue for Sunway to meet its order book renewal target of RM1.5 billion.
Sunway is currently trading at quite a steep discount (30%) to its s-o-p and one of the cheapest stocks in our conglomerate coverage — trading at a CY12F price-earnings ratio of 11 times vis-a-vis its peers of 17 times. While the stock looks attractive there are no near-term catalysts. — AmResearch, April 23