CIMB Research retains Add for Sunway, adjusted TP of RM2.09

Sunway plans to list its healthcare division within the next two to three years

KUALA LUMPUR: CIMB Equities Research is retaining its Add call for Sunway Bhd with ex-bonus adjusted target price of RM2.09.

It said on Thursday it retained the FY17-19 EPS forecasts and adjusted its realized net asset value (RNAV) based target price to reflect the resultant bonus issue and dilution from the free warrants. 

“We continue to apply a 10% RNAV discount (similar to the diversified big cap contractors in our coverage) to reflect the group’s improving construction prospects on the back of a strong sector rail theme in 2018. Key downside risks are job delays and weak property sales,” it said.

On Wednesday, Sunway’s four-for-three bonus issue went ex. This bonus issue also came with three-for-10 free warrants. The strike price was RM1.86 share.

CIMB Research said in terms of its property development outlook, as at end-June, Sunway clocked in RM339mil worth of effective new sales, or 31% of its unchanged full-year property sales target of RM1.1bil. 

On a positive note, Sunway management observed that the property market’s sluggish sentiment is showing signs of bottoming out, and a ramp-up in sales of selected developments is likely in 2H. 

Effective unbilled sales of RM908m is 1.1 times of its property segment’s annualised 1H17 revenue.  

Listed construction arm Sunway Construction recently secured a RM582mil contract to build six 29-storey blocks of 1Malaysia Civil Servants Housing (PPA1M) apartments in Kota Baru, Kelantan. 

This bumps up its construction order book by 9% to RM4.7bil. Accumulated total year-to-date wins of RM1.6bil is one of the highest in the sector.  

“Post-2QFY17 results in Aug, we understand that Sunway’s tender book value stood at RM14bil, of which a substantial portion are infrastructure jobs. 

“We believe Sunway could continue to be among the major beneficiaries of new rail contracts. Major rail projects that are in the pipeline for 2018 include The East Coast Rail Link (ECRL), KL-Singapore High Speed Rail (HSR) and MRT 3 (circle line).

“Separately, we would not discount Sunway to emerge as one of the key bidders of the KL-Klang Bus Rapid Transit (BRT) contract.  

“In the longer run, the group plans to enhance its presence in the healthcare space through the building of five more Sunway Medical Centres nationwide, which could incur RM1bil capex over time (RM200mil per hospital). 

“Contribution from the healthcare segment (Sunway Medical Centre in Bandar Sunway) currently accounts for only 6% of total group net profit and is targeted to increase to 10%-15% as the hospital operations expand.  The group plans to list its healthcare division within the next two to three years,” it said.