Insider Asia’s Stock Of The Day: Sunway Bhd

by **Cals** Thu 02 Jul 2015, 01:05

Insider Asia’s Stock Of The Day: Sunway Bhd

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By Asia Analytica / The Edge Financial Daily | July 1, 2015 : 10:31 AM MYT

[size=14]Sunway Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)

SUNWAY (Fundamental: 1.5/3, Valuation: 2.4/3), a leading property and construction company in the country, has a vertically integrated business model that captures the entire real estate value chain — from landbanking to construction and property development to finally, recycling capital via a real estate investment trust (REIT).

We like Sunway for its unique business model, strong branding and track record, as well as diversified earnings base. Yield is decent at 3.2%, based on dividends of 11 sen per share in 2014.

The spin-off — and imminent listing — of its construction arm would help unlock value in its holdings. Shareholders of Sunway have received shares in the construction unit via a distribution-in-specie (its shares went ex-entitlement on 6 May). Sunway also intends a special cash distribution of 22-28 sen per share. In 2014, construction contributed to 22% of net profit. Construction order book, consisting of both infrastructure and property development projects, remains strong at RM2.8 billion. This would underpin earnings as projects are progressively completed. The company is upbeat that its order book will increase to RM4.0 billion by year-end.

Meanwhile, property development accounted for 44% of net profit last year. Whilst the overall property sector is experiencing a slowdown, we take comfort in the company’s RM2.5 billion of unbilled sales, which will provide 1.5-2 years of earnings visibility. Its vast 3,363-acre landbank and future developments in the Klang Valley and Iskandar Malaysia should also support earnings over the longer-term.

Last but not least, property investment brought in 21% of earnings last year. Income from this division is recurring and expected to be resilient. About two-thirds of property investment income is derived from 36%-owned Sunway REIT ([You must be registered and logged in to see this image.] Financial Dashboard). The company still has a number of properties under its direct holdings that could be monetised via the REIT.

Valuations are fairly modest — the stock is currently trading just below its book value of RM3.49 and P/E multiples of 7.7 times.

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This article first appeared in The Edge Financial Daily, on April 27, 2015.
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