KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Sunway Bhd
with a lower target price of RM1.45 from the previous RM1.54, in view of a still-challenging property market and downturn in mega contracts.
It said on Thursday the 9M18 results were below expectations; core net profit up 4.2% year-on-year
The group achieved RM1.4bil property sales and RM1.4bil total contract wins year-to-date.
“The 9M18 core net profit constituted 67% of our and 68% Bloomberg consensus’ full-year forecasts.
“Results were below expectations as we have overestimated construction pretax margin and property sales,” it said.
CIMB Research said construction revenue surged 30% year-on-year compared to the 23% year-on-year contraction in property development.
“Overall 9M18 core net profit (ex-fair value gain at SunREIT) grew 4.2% year-on-year,” it said.
The research house said year-to-date, the 54.4%-owned Sunway Construction Group Bhd has won RM1.4bil worth of contracts, mainly internal building/property jobs from Sunway Bhd.
Total outstanding order book of RM5.2bil as at end-September implies a solid order book-revenue cover of 2.6 times. The group targets to mitigate the slowdown in external contracts by leveraging on Sunway Bhd’s expansion of its medical centres.
“We believe SunCon could secure a RM100mil to RM150mil internal contract by year-end,” it said.
Sunway achieved effective property sales of RM1.4bil YTD. Total effective property unbilled sales stood at RM1.8bil as at end-3Q18.
Effective sales for its ventures in China (Sunway Gardens) and Singapore (Rivercove Residences), which amounted to RM906mil, constituted 65% of total effective property sales in 9M18.
However, due to the adoption of MFRS 15, the combined RM85.4mil progressive development profits in 9M18 can only be recognised upon completion.
CIMB Research noted the progress of SunCon’s RM2.3bn LRT 3 package (GS07-08) has been slow, to accommodate the project's cost rationalisation phase.
“Management expects more clarity from the turnkey contractor on the impact of the reduction in scope and cost to stations on its LRT 3 alignment by end-2018,” it said.
As at end-September, outstanding value for SunCon’s LR 3 package made up 39% of its RM5.2bn total outstanding order book. As for MRT 2, the reduction in station scopes will impact its RM1.2bn package (end-September: 57% completed).
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