Sunway continues to expand its footprint in Johor.
PETALING JAYA: Despite downside risks, the prospects for Sunway Bhd
are bright in the near term, thanks to its healthcare and construction businesses.
CGS-CIMB Research said Sunway Healthcare Group (SHG) has fast-growing potential on a two-year revenue and earnings before interest, tax, depreciation and amortisation (Ebitda) compounded annual growth rate (CAGR) of 34%-38% over financial year 2021 (FY21) to FY23 and pipeline of new hospitals.
“We raise our sum-of-parts value for SHG to RM9.5bil, now based on 20 times FY25 forecast Ebitda (versus 15.8 times previously). In our view, SHG should command a premium given its market-leading revenue per bed of RM1.3mil versus Ramsay Sime Darby Healthcare’s RM0.85mil while revenue and Ebitda grew at a high clip of 34% and 38% two-year CAGR over FY21-FY23,” it added in a report.
The research house said the next leg of growth would be anchored by internal expansion at its three hospitals and visible pipeline of new hospitals, namely Sunway Medical Centre Ipoh and Sunway Medical Centre Damansara, which would add a combined 600 beds between the fourth quarter of 2024 (4Q24) to 1Q25.
As of September 2023, SHG had three hospitals in its portfolio with 1,121 licensed beds and CGS-CIMB Research expects this to increase to 1,300 beds by end-2024 (total bed capacity of 1,714).
At the same time, Sunway continues to expand its footprint in Johor and has embarked on a joint venture with Equalbase, a Singapore developer and asset manager, to build an integrated warehouse with multi-tenant facility for the logistics industry on 135 acres of its 1,770 acres of land in the state.
Sunway is estimating the gross development value (GDV) of RM8bil over a 10-year period.
The business model is build-own-operate and the JV may consider a disposal to a real estate investment trust to recycle capital.
“While contribution from Johor was 10%-15% of total FY23 pre-sales and two launches in Johor are slated for FY24, we think Sunway will conserve land until there is further clarity on the zoning of the Southern Economic Zone (SEZ).
“We do no discount enquiries from data-centre operators, which is synergistic to its construction business. Group-wise, we do not expect pre-sales growth to be meaningful in FY24 (FY23 about RM2.3bil) but this should accelerate once it launches its executive condo project in Tengah, Singapore, with an estimated GDV of RM2.5bil.
“We expect strong take-up for this given the precedent set by previous launches,” the research house said.
The brokerage reiterated its “add” call on Sunway and raised the target price of the stock to RM3.40.
The key downside risks to its call include a slowing economy, which would impact most of the group’s divisions, and rising raw-material costs.
On the other hand, key re-rating catalysts are strong property sales, more construction wins and a faster initial public offering (IPO) of its healthcare unit, SHG.
Meanwhile, RHB Research said in a report early this month, the IPO for SHG has to be completed by October 2027 under the shareholders’ agreement with Singapore’s sovereign wealth fund GIC Pte Ltd, but expects the listing to happen sooner.
