CIMB Research expects stronger quarters ahead for Sunway, driven by construction and healthcare.
KUALA LUMPUR: Sunway Bhd
’s 1Q19 core net profit was broadly in line at 23% of CIMB Equities Research and consensus full-year estimates.
“We expect stronger quarters ahead, driven by construction and healthcare,” it said on Thursday.
Sunway’s revenue contracted 12.3% on-year, weighed down by most divisions but partially mitigated by healthcare (+24% on-year) and property investments (+2% on-year).
Despite the impact of MFRS 15 on the recognition of the group’s China and Singapore property development ventures, 1Q19 core net profit rose 14% on-year, driven by the 29% on-year increase in interest income.
CIMB Research said Sunway’s property development segment was impacted by weaker domestic sales and progress billings, though pretax profit was bumped up by 20% on-year due to the reversal of provisions.
Notably, the construction division pretax margin of 13% in 1Q19 (1Q18: 9%) was boosted by lower intra-group eliminations in 1Q19.
“However, its revenue slipped 22% on-year in 1Q19 due to slower billings, which also reflected the slowdown in relation to LRT 3 and MRT 2’s cost rationalisation, in our view,” it said.
The healthcare division posted the strongest pretax profit growth of 43% on-year in 1Q19, though it contributed only 9% to group pretax profit.
“Its subsidiary, Sunway Construction (SunCon), clinched RM1bn in new contracts in 1Q19, bringing total outstanding order book to RM5.7bil as at end-March 2019. The group has maintained its target job replenishment of RM1.5bil for FY19, backed by RM7.4bil in active tender book which includes three hospital expansions by Sunway Bhd.
The revived East Coast Rail Line (ECRL), which will start the prequalification phase at end-May, could emerge as a new potential tender in 4Q19, in its view.
“Sunway targets new property sales of RM1.3bn for FY19. The group’s target to launch RM2bn worth of projects remains intact, with overseas developments accounting for 50% of total launch GDV.
"As at 1Q19, Sunway achieved effective property sales of RM172m. Property unbilled sales of RM1.8bn should support earnings in the coming quarters.
“No changes to our FY19-21F EPS and TP, which remains pegged to a 20% RNAV discount. Retain Hold on limited upside to share price, though upside risk could emerge from construction awards exceeding its RM1.5bn target. Downside risk is weaker domestic property sales,” it said.
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