PETALING JAYA: Sunway Bhd
presents investors exposure to growth in the property, construction and healthcare sectors and the underlying Malaysian economy.
Hong Leong Investment Bank Research (HLIB Research) believes the sharp 80% rise in Sunway’s share price over the past year could continue as the group’s strategy to develop the three segments in particular, offer sustained earnings growth in the years ahead.
“Sunway’s wide exposure in the domestic economy through its property, construction, healthcare, hospitality, building materials, quarry and other business segments is expected to chug along with the economic progress of the nation,” the research house stated in its latest research report on the group.
The research house has kept its “buy” call on the group with a higher target price of RM3.76 a share, from RM3.10 previously, based on sum-of-parts derived valuation.
The recommendation is based on Sunway group’s widening exposure in the Malaysian economy, which is on the cusp of entering a new phase of growth with rising investments into areas such as data centres.
The upbeat price target comes despite Sunway’s property segment setting a lower effective sales target of RM2.1bil (2.3% lower year-on-year (y-o-y) and effective launch target of RM1.6bil (61% lower y-o-y) for financial year 2024 (FY24).
HLIB Research, however, expects the group to have a higher-margin mix of product for the year.
The lower launch target for FY24 was also due to a high base in the preceding year from the launch of two large Singapore projects.
Of the launches planned for this year, 64% is located in the Klang Valley, 13% in Johor, 9% In China, 8% in Penang and 5% in Ipoh, HLIB Research noted.
Sunway’s property segment is also set to enjoy a lumpy profit recognition from the Parc Central Tampines project in Singapore and the handover of several projects including Sunway Velocity 2 and Sunway Belfield in Kuala Lumpur in FY24.
This segment will also see the commencement of progress billings from the two private-condominium projects launched in FY23, while the Sunway Velocity 3 development is set to offer a lucrative pre-tax margin of up to 50%, HLIB Research noted.
The footfall numbers at its malls are also expected to remain strong, but investor interest in Sunway will be anchored by the prospects of its healthcare business under Sunway Healthcare Group (SHG), which could be listed by end-FY27.
In FY23, SHG achieved income of RM1.46bil and earnings before interest, taxes, depreciation and amortisation (Ebitda) of RM380.8mil. The segment enjoyed an Ebitda margin of 26.1% and four-year compound annual growth rate (CAGR) of 34.9% from FY19-FY23.
The segment’s Ebitda margin is at the upper end of the industry average range of 20%-28%, the research house noted and the CAGR was achieved despite challenges presented by the Covid-19 pandemic, which delayed capacity expansion.
