Sunway Bhd (May 30, RM2.26)
Maintain buy with revised target price of RM2.60 from RM2.94: Sunway Bhd delivered earnings of RM64.4 million in 1QFY12, which accounted for 16% of our and 18% of consensus forecasts.
Weaker 1Q results were mainly due to lower revenue contribution from the property segment as well as slower progress of construction.
In tandem with lower revenue in 1Q (-2.3% y-o-y), earnings declined by 5.6% y-o-y to RM64.4 million. Earnings in the property development segment declined by 42.1% y-o-y and construction by 61.1% y-o-y.
The property investment division's earnings declined by 28.9% y-o-y, mainly due to higher interest expense incurred following the restructuring of the group's borrowings.
The exception was the trading and manufacturing segment, which saw its earnings grow by 2.1% y-o-y .
After adjustment for the one-off items, core profit increased by 15.8% y-o-y, mainly because most of the profit was generated by wholly-owned subsidiaries resulting in lower minority interests.
Nevertheless, earnings were still widely off our and consensus forecasts due to lower billings and sales of local property developments, slower progress billings of local construction jobs as well as the delay in the LRT construction job.
Sunway property sales of RM174 million for 1Q were below expectation, accounting for about 13% of the full-year sales target. We reckon slower sales could be due to the delay in some of the scheduled launches.
Sunway said it expects new property sales to moderate in the near to medium term as demand was affected by Bank Negara Malaysia's (BNM) responsible lending policy and uncertain economic conditions.
Unbilled sales declined from RM1.8 billion in 4QFY11 to RM1.7 billion in 1QFY12, suggesting that the burn rate was well above the replenishment of new sales.
Recently, Sunway was awarded the viaduct guideway package of the Klang Valley MRT. Excluding the awards of internal projects such as Sunway Velocity, total external construction jobs secured were RM1.21 billion which equal 81% of targeted order book replenishment per year.
Property sales of RM174 million registered in 1Q were below our expectation. Furthermore, the construction segment was affected by slower progress billings of some local projects and delay in the commencement of the LRT extension.
Hence, we are revising downward our earnings forecast for FY12 by 12% and 15% for FY13.
We are also ascribing a higher discount of 40% against the fully diluted sum-of-parts valuation (FD SOP) of Sunway as we are wary about further deterioration of the property segment from 2Q onwards.
Despite the heavy discount on FD SOP, we maintain our "buy" recommendation for Sunway as the company shares are still undervalued. It is noteworthy that Sunway is the only big cap developer trading below its net asset value. — MIDF Research, May 30
This story appeared in The Edge Financial Daily on May 31, 2012.
Maintain buy with revised target price of RM2.60 from RM2.94: Sunway Bhd delivered earnings of RM64.4 million in 1QFY12, which accounted for 16% of our and 18% of consensus forecasts.
Weaker 1Q results were mainly due to lower revenue contribution from the property segment as well as slower progress of construction.
In tandem with lower revenue in 1Q (-2.3% y-o-y), earnings declined by 5.6% y-o-y to RM64.4 million. Earnings in the property development segment declined by 42.1% y-o-y and construction by 61.1% y-o-y.
The property investment division's earnings declined by 28.9% y-o-y, mainly due to higher interest expense incurred following the restructuring of the group's borrowings.
The exception was the trading and manufacturing segment, which saw its earnings grow by 2.1% y-o-y .
After adjustment for the one-off items, core profit increased by 15.8% y-o-y, mainly because most of the profit was generated by wholly-owned subsidiaries resulting in lower minority interests.
Nevertheless, earnings were still widely off our and consensus forecasts due to lower billings and sales of local property developments, slower progress billings of local construction jobs as well as the delay in the LRT construction job.
Sunway property sales of RM174 million for 1Q were below expectation, accounting for about 13% of the full-year sales target. We reckon slower sales could be due to the delay in some of the scheduled launches.
Sunway said it expects new property sales to moderate in the near to medium term as demand was affected by Bank Negara Malaysia's (BNM) responsible lending policy and uncertain economic conditions.
Unbilled sales declined from RM1.8 billion in 4QFY11 to RM1.7 billion in 1QFY12, suggesting that the burn rate was well above the replenishment of new sales.
Recently, Sunway was awarded the viaduct guideway package of the Klang Valley MRT. Excluding the awards of internal projects such as Sunway Velocity, total external construction jobs secured were RM1.21 billion which equal 81% of targeted order book replenishment per year.
Property sales of RM174 million registered in 1Q were below our expectation. Furthermore, the construction segment was affected by slower progress billings of some local projects and delay in the commencement of the LRT extension.
Hence, we are revising downward our earnings forecast for FY12 by 12% and 15% for FY13.
We are also ascribing a higher discount of 40% against the fully diluted sum-of-parts valuation (FD SOP) of Sunway as we are wary about further deterioration of the property segment from 2Q onwards.
Despite the heavy discount on FD SOP, we maintain our "buy" recommendation for Sunway as the company shares are still undervalued. It is noteworthy that Sunway is the only big cap developer trading below its net asset value. — MIDF Research, May 30
This story appeared in The Edge Financial Daily on May 31, 2012.
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