Summary of Analyst Report: Sunway Bhd target price RM.2.93, Buy - Hong Leong Investment Bank Research

Sunway's share price has been relatively muted after it was revealed that the company (by May) had not launched any new property projects while guiding down its new launches from RM1.5bil to RM800mil (based on effective stake).

The lower revised target was mainly due to the postponement of about RM300mil gross development value (GDV) based on 60% stake for Sunway Geo located at South Quay and RM180m GDV based on 60% stake in Tianjin, China.

The former is due to the slower take-up rates for its existing projects i.e. LaCosta Condominium (GDV: RM242mil, 51% take-up), while the latter is due to tightening policies in China.

Although investors may perceive this negatively, Sunway tends to launch its products at a premium of some 10% to 30% compared with its neighbouring developments, hence the take-up rate for new launches has been slower compared with the rest of its peers.

Before the merger, its take-up rate had been approximately 60% to 70%, and only jumped up to 90% in the financial year ended June 30, 2011 (FY11) after the merger.

We applaud the management's decision to roll back its new launches. Firstly, it will avoid having unnecessary working capital tied in.

Secondly, with a higher take-up rate target, it will translate to faster monetisation of its development projects.

Hence, we believe that we are beginning to see the positive changes arising from the merger in the form of prudent risk-adjusted development ventures to ensure that shareholders' interests are protected.

So far, Sunway's new major launch has been from Pasir Ris, Singapore, with a GDV of some RM266mil (based on 30% stake).

The balance of launches will be sporadic around Penang, Ipoh, Equine Park, etc, places where the management is confident about take-up rates.

Despite the lower target of new launches, it does not indicate that Sunway's new property sales will be badly affected.

As of the second half of 2012, the company has already achieved new property sales of about RM600mil, a sharp increase of RM426mil in new sales achieved for the second quarter compared with only RM174mil new sales in the first quarter.

By simply annualising the new sales figure, which works out to new sales of some RM1.2bil, we believe Sunway will exceed their new sales target of RM800mil and touch close to the previous new sales target of RM1.4bil.

We estimate that Sunway has an unbilled property sales of about RM2.1bil, translating to 2.3 times FY11's property revenue.

By assuming just the book value of the property and property investment division, our base case valuation for Sunway works out to RM2.48.

Including dividend yield of 2.3%, there is still 10.6% upside from the current price level, hence we believe that the company remains undervalued.

Earnings for FY12 and FY13 have been cut by 3.5% and 12% respectively to reflect slower property earnings contribution while introducing our forecast for FY14.

Source: www.thestar.com.my

Sunway Berhad: Week 19 (7-11 May) Stock Picks Commentary

Stock Picks #4

Sunway Berhad (SUNWAY)

Week high : RM 2.46 (Up 16 sen – 7%)

On 9 May, the Mass Rapid Transit Corporation (MRT Corp) awarded four more packages for the construction of the Sg Buloh - Kajang (SBK) MRT Line worth RM3.22bil.

Sunway Construction was awarded Package V4 for works between Section 17 in Petaling Jaya and the Semantan Portal, where the alignment will continue underground.

Market reacted positively as the MRT tender award would generate additional revenue to Sunway Berhad and this could potentially boost profits, even though the exact worth of the contract awarded to Sunway Berhad is not publicly known.

Before you decide to splurge on Sunway stocks, do take note that on 24 April, AmResearch reports that Sunway’s property division is feeling the impact of the 70% loan-to-value ruling introduced in November last year.

This is because 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. Consequently, AmResearch believes that it will be challenging for Sunway to meet its RM1.9 billion sales target this year on weaker sales since early 2012.

SUNWAY stock price surged 7% or 16 sen within the day on 9 May to a high of RM 2.46 and closed at RM 2.33 for the week.

Click Here for all latest posts on Sunway Berhad

Sunway, Muhibbah Engineering, MTD ACPI and TRC Synergy among winners of four additional packages to contruct Sg Buloh - Kajang MRT line worth RM 3.22 billion

(SUNWAY opening stock price today (9.5.2012) was RM 2.30) 

(MUHIBAH opening stock price today (9.5.2012) was RM 1.29) 

(TRC opening stock price today (9.5.2012) was 72.5 sen) 

(MTDACPI opening stock price today (9.5.2012) was 38 sen)

Share prices of MTD ACPI Engineering Bhd, Sunway Bhd and TRC Synergy Bhd advanced at midday on Wednesday after their related companies were awarded part of the Sg Buloh - Kajang (SBK) MRT Line.

The Mass Rapid Transit Corporation (MRT Corp) awarded four more packages for the construction of the Sg Buloh - Kajang (SBK) MRT Line worth RM3.22bil.

MRT Corp announced that four packages were awarded to Syarikat Muhibbah Perniagaan & Pembinaan Sdn Bhd, Sunway Construction Sdn Bhd, MTD Construction Sdn Bhd and Trans Resources Corporation Sdn Bhd.

MRT Corp had said the awarding of the packages followed the conclusion of the One Stop Procurement Committee (OSPC) meeting chaired by Prime Minister Datuk Seri Mohd Najib Tun Abdul Razak.

Syarikat Muhibbah was awarded Package V1, which is a bumiputra-exclusive package, covers work between the Sg Buloh and Kota Damansara stations of the SBK alignment.

Sunway Construction was awarded Package V4 for works between Section 17 in Petaling Jaya and the Semantan Portal, where the alignment will continue underground.

MTD Construction Sdn Bhd won Package V7 for works between Bandar Tun Hussein Onn and Taman Mesra in Cheras.

Trans Resources Corporation was awarded the final package for works related to the Sg Buloh Depot.

Source: www.thestar.com.my

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

Source: www.theedgemalaysia.com