CGS-CIMB Research believes that the larger and more sustainable growth catalyst for the group is the initial public offering of its healthcare subsidiary Sunway Healthcare Group.
PETALING JAYA: CGS-CIMB Research is bullish about the outlook of conglomerate Sunway Bhd
, driven by positive news of the latter’s exposure growth in Johor as well as the prospects of its healthcare division.
The research house believes that the larger and more sustainable growth catalyst for the group is the initial public offering (IPO) of its healthcare subsidiary Sunway Healthcare Group (SHG), which CGS-CIMB Research now expects to take place in 2026.
“We sense the key factor to expediting the IPO is maximising valuation by expanding market capitalisation via mergers and acquisitions and not compromising on valuations,” the securities firm stated in a report on Sunway.
In its view, SHG’s strength and execution expertise were demonstrated by the respective year-on-year (y-o-y) increases in the latter’s revenue for the first half of 2023 (1H23) and pre-tax profit by 38% and 29%, respectively, despite startup losses from Sunway Medical Centre (SMC) Penang and retirement home Sunway Sanctuary.
The research house expects SMC Penang to be pre-tax profit positive by the fourth quarter of the current financial year – that is within a year of opening – compared to typical gestation periods for medical facilities of three to four years.
It also believes the scheduled opening of SHG’s two new hospitals in Kota Damansara and Ipoh will expedite the latter’s IPO.
CGS-CIMB Research added the other expansion driver for Sunway is its property segment, which is buoyed by the group’s increased exposure in Johor.
The research outfit pointed out that property pre-sales for Sunway during 1H23 were RM1.5bil, tracking ahead of the group’s RM2.3bil guidance for the financial year ending Dec 31, 2023.
It said: “Sunway’s land bank of 1,770 acres in Johor at Pendas and Medini may be a prime beneficiary of the Johor-Singapore special economic zone, the potential Johor-Singapore Rapid Transit System Link and the possible revival of the Kuala Lumpur-Singapore High Speed Rail, in our view.”
Furthermore, CGS-CIMB Research reported that Sunway appears to be cementing its position in Johor after the group announced in mid-August that it was in the process of acquiring the remaining 40% of the total 1,079 acres in Pendas Johor it does not own from the Iskandar Investment Authority.
“Sunway had a total landbank of 3,308 acres with a gross development value (GDV) of RM51bil at end-August, with 49% and 57% in Johor in terms of acreage and GDV,” the research outfit wrote.
Favouring Sunway as a diversified investment proxy for a robust domestic economy and growing exposure to healthcare, it maintained its “add” call on the counter, with an upgraded target price of RM2.57 a share from its previous target of RM2.21.
