KUCHING: While analysts are less optimistic on the outlook for Iskandar Malaysia’s property market, they expected Sunway Bhd (Sunway) to look beyond Iskandar Malaysia to push its long-term growth.
According to the research arm of Affin Investment Bank Bhd, Sunway’s share price has corrected by 27 per cent from peak as market turned cautious on the domestic property market and in particular, the less optimistic outlook for the Iskandar Malaysia property market (Iskandar Malaysia accounts for 61 per cent of Sunway’s total gross development value and 54 per cent of its total land bank).
“While we are also cautious on Iskandar Malaysia due to higher competitions and tough property cooling measures introduced in Budget 2014, we note that Sunway is more than Iskandar Malaysia as Iskandar Malaysia’s project only accounts for 24 per cent of its 2014 property launches; and Sunway derives approximately 55 per cent of its income from its stable, non-development businesses (real estate investment trust, property investment, construction, trading, quarry, and building materials),” it highlighted.
In addition, Sunway recorded a bumper fourth quarter 2013 (4Q13) property sales of RM700 million (effective sales is RM560 million) driven by the launches of its RM480m Sunway Geo Residences project and the S$493 million (RM1.3 billionn) Royal Square @ Novena project in 4Q13.
“The Sunway Geo Residences achieved a strong take up of 60 per cent (90 per cent including bookings) while the Royal Square @ Novena achieved a modest take up of approximately 44 to 45 per cent.
“These projects helped to bump up Sunway’s 2013 property sales to RM1.8 billion (effective RM1.4 billion), from RM1.1 billion (effective RM0.8 billion) in the first nine months of the financial year 2013 (9MFY13),” Affin Research said.
It added that beyond Iskandar Malaysia, for 2014, the group’s management planned to launch RM2.3 billion worth of properties (effective RM1.7 billion) in multiple locations across three countries .
It noted that Singapore, Klang Valley and Johor projects account for 27, 26 and 24 per cent of the total upcoming projects gross development value (GDV) respectively while the Tianjin (China), Penang and Ipoh projects jointly account for the remaining 23 per cent.
“While we are generally cautious on the regional property market outlook, we are slightly more upbeat on Sunway’s Klang Valley and Singapore projects in view of its strong sales track record in these regions,” the research firm opined.
Meanwhile, Affin Research noted that Sunway is targeting higher construction contract wins for 2014.
It added, Sunway had secured RM1.5 billionn worth of external construction jobs in 2013 (RM2 billion including internal orders), exceeded its forecast of RM1 billion.
For 2014, management has been reported to be aiming for additional MRT contracts (Line 2) and is targeting to secure RM2.5 billion worth of construction jobs (including internal orders) by leveraging on its experience in existing infrastructure contracts (MRT, LRT, BRT).
As such, Affin Research said, “We revised our FY14 estimate construction contract wins to RM2 billion (from RM1 billion) in view of management’s renewed optimism and the group’s strong orderbook replenishment track record during 2011 to 2013.”
The research firm maintained its earnings assumptions for Sunway’s other businesses and in tandem with the construction earnings upgrade, it lifted its revised net asset value (RNAV) estimate to RM4.14 (from RM4.04) and raised its target price to RM2.90 per share (from RM2.80 per share) based on an unchanged 30 per cent discount to RNAV.
Despite its positive view on Sunway, it opined that the lack of near term re-rating catalyst and general weakness in high-end condominium market (especially in Iskandar Malaysia) might continue to cap its share price performance.
Additionally, it cautioned that key risks to its optimistic view of the group lies in sharper-than-expected slowdown in the domestic property market, lower-than-expected construction contract wins, and execution risk.