Sunway least affected by softness in property market, says Nomura

CIMB Research retained its Hold call for Sunway REIT as it expects the office and hotel segment to remain soft in 2016

KUALA LUMPUR: Sunway Bhd is the property company which is least impacted by the softness in the property market in Malaysia because the proportion of its earnings from property development is the lowest. 

Nomura Research said this was highlighted by Sunway Bhd’s management at the Nomura Investment Forum Asia 2016 in Singapore over June 7 to 10.

“This is consistent with our expectation as we estimate the property development segment will make up 44% of Sunway Bhd’s core PBT in FY16F, compared to peers under our coverage where more than 90% of profit before tax is from property development,” it said.

It pointed out that construction and property investments (Sunway REIT and non-REIT assets) segments will offset the softness in property development earnings in FY16F.

“The manager (Sunway Bhd) is generally positive about the construction segment outlook due to the public infrastructure projects wins by Sunway Bhd’s construction arm -  Sunway Construction (Neutral)  - as well as the future pipeline for such projects. 

“This is in line with our expectation as highlighted in our recent report on Sunway Construction (Neutral) where the orderbook replenishment win target has been raised to RM2.8bil in FY16F (from RM2bil),” it said.

Nomura said Sunway Bhd is trading at a FY16F P/E of 10.5 times and price-to-book (P/B) of 0.9 times, which is at a discount when compared to its peers’ FY16F P/E of 13.6 times.

“We value Sunway based on sum-of-parts derived realised net asset value (RNAV). We sum the values from all businesses to get the group’s RNAV and add cash from warrants and ESOS to get fully-diluted RNAV of RM12.4bil. 

“To that we ascribe a 50% discount to the property development and non-REIT investment RNAV and derive our TP of RM4,” it said.

However, Nomura said downside risks are: 1) any project delays or disappointing take-up rates could dent our earnings forecasts; 2) a failure of the company to meet its sales targets or pass on cost increases to customers; 3) further weakening of Iskandar sentiment; 4) failure of Sunway Putra Mall to get tenancy targets.

It also said any contractions in GDP growth or unexpected government policy measures to curb the sentiment in the property sector are downside risks to its call.