PETALING JAYA: Earnings recovery is underway for Sunway Bhd given its resilient healthcare division and strong rate of property take-up.
Sunway is turning the corner as an economic recovery is in sight.
Its third quarter 2021 (Q3’2021) earnings weakness is expected to be further cushioned by its healthcare division’s defensiveness, as evidenced in Q2’2021.
The company returned to the black, with a net profit of RM70.52mil in Q2 ended June 30, 2021 compared with a net loss of RM20.38mil in the corresponding quarter last year.
It proposed a first interim dividend of one sen per share. During the period in review, its revenue rose 74% to RM967.92mil from RM556.64mil in Q2’2020.
UOB Kay Hian Research said: “We remain sanguine on Sunway’s near-term prospects, as the group is turning the corner with improvements seen across all divisions as the economy reopens.
“The salient trends seen since mid-Sept 2021 include a pick-up in local property sales and bookings, construction productivity level reaching 100%, steady hospital bed occupancy rate at 60% to 65% (pre-Covid-19: 65% to 75%), resumption of footfall in retail malls (50% to 80% of pre-pandemic level) and operating tenants at 95%, as well as a gradual improvement in hotel occupancy rate.“While most of Sunway’s divisions are expected to be weak in Q3’2021 due to the impact of the country-wide lockdown, management is confident that most sectors will remain profitable, with the exception of the leisure and hospitality segments,” it noted.
UOB Kay Hian, which is maintaining a “buy” call on the stock, said with the faster-than-expected vaccination progress, lifting of the interstate travel ban, and the potential reopening of travel borders, the management is confident that Sunway would see a strong recovery across all business operations in Q4’2021.
The healthcare arm should fare well despite the lockdown in Q3’2021, which was evident in Q2’2021 with a strong profit before tax (PBT) of RM26.6mil (up 1% quarter-on-quarter) versus a loss before tax of RM16bil in Q2’2020.
Recall that Sunway has been receiving non-Covid-19 patients from the government (with a margin cap) since June 2021.
While this number has been decreasing in tandem with the nationwide Covid-19 hospitalisation rate, the return of elective patients has stabilised the patient volume in September 2021 (60% to 65%) as the lockdown eased.
“We expect the defensiveness of its healthcare division (which accounted for 25% of the first half 2021 PBT) to cushion Q3’2021’s earnings weakness,” the research house added.