Upload
jimmyttl
View
222
Download
0
Embed Size (px)
Citation preview
8/9/2019 Sunway Initiating Coverage 20100521 OSK
1/13
PP10551/10/2010(025682)21 May 2010
OSK Research | See important disclosures at the end of this report 1
MALAYSIA EQUITYInvestment Research
Daily News
Initiating CoverageJeremy Goh, CFA+60 (3) 9207 7600
[email protected] Sunway Holdings
Ripe for the Picking
BUY
Target RM1.96Previous -Price RM1.43
CONSTRUCTION
Sunway is primarily involved in construction,property development and quarrying.
Stock Statistics
Bloomberg Ticker SGW MKShare Capital (m) 601.76
Market Cap (RMm) 860.5252 week HL Price (RM) 1.73 0.903mth Avg Vol (000) 1,160.8YTD Returns 12.6Beta (x) 1.49
Major Shareholders (%)
Tan Sri Jeffery Cheah 43.0
Share Performance (%)
Month Absolute Relative1m -5.1 -4.23m 5.1 -0.86m 6.7 4.312m 56.3 25.0
6-month Share Price Performance
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
Oct-09 Nov-09 Jan-10 Feb-10 Mar-10 Apr-10
We have a positive outlook on the domestic construction scene and view Sunway as
strong proxy. Its established track record should give Sunway the clout to secure
repeat jobs from existing clients. We also expect more jobs to flow from overseas
markets such as Abu Dhabi, India and Singapore. Sunways property earnings
hould be anchored by its Singapore developments, for which there has been strong
ake-up. We initiate coverage on Sunway with a BUY rating and RM1.96 TP.
Domestic outlook. Sunway has tendered for RM16.1bn worth of jobs and boasts a
historical success rate of 10%-15%. We believe that domestic contracts awarded to listed
contractors in 2010 may exceed last years RM10bn. Some 77% of Sunways targeted jobs
are in Malaysia. Among the potential jobs are: (i) the LCCT building (RM750m-RM850m)and satellite terminal (RM400m-RM500m), for which Sunway has been prequalified, and (ii)
Legoland Theme Park (RM700m), given its experience with 2 theme parks earlier.
Repeat jobs. We understand that Putrajaya Holdings SB intends to call for RM1bn worth of
tenders in the coming months and SunCity has RM700m-RM800m worth of projects in the
pipeline. In our view, Sunway should have a good chance of success with these developers
as it has previously conducted works worth RM750m-RM780m for each of the two.
Foreign contracts. Currently Sunway is constructing Phase 1 of the USD25bn Arzanah
Development. As tenders for Phase 2 (RM1bn) could be called next year, we expect
Sunway to leverage on its relationship with Capitala to secure a slice of the pie. In India, we
see Sunway securing some road jobs given the sizable rollouts being planned, a shortage
of local capacity and the companys track record (RM1bn completed). We also believe
Sunway can land more precast concrete structure jobs in Singapore, driven by the nationsplans to ramp up construction of HDB flats.
Property developments. Sunway has an effective GDV balance of RM1.9bn, out of which
RM750m-RM800m will be launched this year. We see property earnings anchored by the
Boon Keng (SGD421m) and Toa Payoh (SGD680m) developments, in which it has a 30%
stake. Both developments are nearly sold out and construction has commenced. Sunway
also plans to launch its Jln Senang development (SGD420m, 30% stake) this year.
Initiate with BUY. We have a 3-year earnings CAGRf of 27.5%. Sunway is also disposing
of some non-core assets to achieve a net gearing target of below 50%. Large cap
contractors under our coverage are now trading at 14.7x CY10 earnings. Given its higher
net gearing, we are ascribing a lower earnings multiplier of 12x to Sunways partially diluted
FY10 EPS, from which we derive a TP of RM1.96.
FYE Dec (RMm) FY08 FY09 FY10f FY11f FY12f
Revenue 1,825.2 2,639.2 1,909.5 2,105.5 2,483.9Net Profit 100.2 109.8 120.4 138.6 151.9% chg y-o-y na 9.7 9.6 15.1 9.6Consensus - - 116.1 138.1 162.8EPS (sen) 16.6 18.3 20.0 23.0 25.2DPS (sen) 2.0 - 2.0 2.3 2.5Dividend yield (%) 1.3 - 1.3 1.5 1.7ROE (%) 18.1 16.0 14.6 14.7 14.2ROA (%) 4.9 5.1 5.1 5.5 5.7PER (x) 9.0 8.2 7.4 6.5 5.9BV/share (RM) 0.99 1.28 1.46 1.67 1.90P/BV (x) 1.5 1.2 1.0 0.9 0.8Note: FY09 is a 18mth period. Per share does not dilute for warrants (246.7m) and ESOS (24.9m)
8/9/2019 Sunway Initiating Coverage 20100521 OSK
2/13
OSK Research
OSK Research | See important disclosures at the end of this report 2
BACKGROUND
Humble beginnings. Sunway Holdings Bhds (Sunway) history goes back more than 3 decades when
it started as a humble local tin mining and quarrying company. It was listed on the Main Board of Bursa
in 1984 under the name Sungei Way Holdings. Over the years, Sunway nurtured its quarrying
business and also ventured into construction.
Crisis strikes. In the mid-90s, Sunway began to raise more debt to finance its acquisitions and
overseas expansion. The bulk of the debt came from the issuance of a USD110m Euro convertible
bond in 1996. Its fortunes turned when the 1997 Asian financial crisis struck, as the group reeled fromthe double whammy impact of slowing construction activities and piling debts. In efforts to reduce its
net gearing, Sunway embarked on various restructuring exercises such as disposing of its quarries
and recapitalising its balance sheet.
Not so silky. After the Asian financial crisis, Sunway suffered another blow in relation to its 36.2%
stake in SunInfra (now known as SILK Holdings (NR)), the toll concessionaire for the Kajang SILK
Highway. Due to lower than expected traffic numbers coupled with high interest expense, SunInfra ran
into losses which were equity accounted into Sunways bottomline. In 2008, Sunway disposed of its
entire stake in SunInfra.
Rising from the ashes. Having survived the Asian financial crisis and debacle involving SunInfra,
Sunway has emerged a stronger entity. Today, it has businesses in construction, quarrying, trading &
manufacturing, building materials and property development spanning 10 countries.
Figure 1: Sunways business activities and geographical presence
Source: Company
Figure 2: Revenue breakdown Figure 3: PBT breakdown
Construct56%
Property12%
Trading17%
Quarry9%
BuildingMaterial
6%
Source : Company
Construct48%
Property21%
Trading13%
Quarry11%
BuildingMaterial
8%
Source : Company
Management team. Sunway is spearheaded by Executive Chairman Tan Sri Dr Jeffery Cheah, who
holds a 45% stake in the company. He also holds a 40% share in property developer Sunway City
(SunCity) (NR), thus making the two entities sister companies. We understand that most of
Sunways senior management has been with the company for more than a decade.
8/9/2019 Sunway Initiating Coverage 20100521 OSK
3/13
OSK Research
OSK Research | See important disclosures at the end of this report 3
INVESTMENT THESIS
Our investment thesis on Sunway is simple: we remain positive on the outlook for domestic
construction and view Sunway as an excellent proxy. As Sunway enjoys a good reputation
among its clients, it is able to secure repeat contracts. We also expect more overseas contracts
from countries such as Abu Dhabi, India and Singapore. For its property division, we see sales
remaining strong, underpinned by the domestic economys recovery. Meanwhile, the quarries,
trading and building materials divisions should continue to show decent growth.
CONSTRUCTION DIVISION
Eyes on more jobs. Sunway has an orderbook balance of ~RM2.5bn, which we estimate is good for 2
years. Historically, Sunway secured jobs from a diversified pool of clientele in the government and
private sectors locally and overseas, which help make it less dependent on jobs from a particular
segment. For example, although 2008 was a drought year for domestic contracts, Sunway managed to
secure RM2bn worth of jobs, thanks to contracts from Abu Dhabi and Singapore. Management has
guided for RM16.1bn worth of tenders in the pipeline and a historical success rate of 10%-15%. Our
projections assume RM750m in new jobs for FY10 (RM263m achieved YTD) and RM1bn pa for FY11-
12, which is still below its 5-year historical average of RM1.15bn pa.
Figure 4: Sunways annual orderbook replenishment (RM/m)
1,827
607
785
2,038
497
750
1,000 1,000
-
500
1,000
1,500
2,000
2,500
2005 2006 2007 2008 2009 2010f 2011f 2012f
Source: Bursa announcements, OSK Research
Figure 5: Sunways outstanding construction orderbook (RM/m)
Project Value Balance
2 govt buildings, Precinct 4, Putrajaya 520 333
Subcontract for South Klang Valley Expressway 199 65
Hotel and office tower, Precinct 1, Putrajaya 147 147
Pilling & substructures, Komtar, Johor Bahru 23 23
100 residential units, Shah Alam 21 21
Hotel extension, Impiana KLCC (Phase 2) 88 88
Other domestic jobs 113 113
Indian highways (UP4 and Cochin) 474 138
Supply of precast concrete, Singapore 550 398
Rihan Heights (M&E works), Abu Dhabi 326 314
Rihan Heights (Arzanah Development), Abu Dhabi ^ 941 743
Al Reem Island (Zone C&E) Phase 1, Abu Dhabi ^ 461 105
Total 3,864 2,490
Note: ^ Only reflects Sunways 60% stake in Rihan Heights and 25% stake in Al ReemSource: Company
8/9/2019 Sunway Initiating Coverage 20100521 OSK
4/13
OSK Research
OSK Research | See important disclosures at the end of this report 4
Positive sector outlook. We are OVERWEIGHT on the Malaysian construction sector underpinned
by positive news flow in the coming months. Government development expenditure is expected to
remain at a record high of RM53.2bn in 2010 (RM53.6bn in 2009). In tracking the domestic
construction awards announced on Bursa, we found that the jobs flow YTD (i.e Jan-April) has
increased 5.2% y-o-y. We believe that the total contracts awarded for 2010 can easily surpass the
RM10bn achieved last year. Recently, 3 Private Finance Initiatives (PFIs)-based projects worth
>RM500m were dished out. This signals that the long awaited PFI projects are gaining traction, which
is positive for the sector as more jobs can be implemented. The unveiling of the 10MP in June should
also be positive for the construction sentiment. Sunway has positioned itself for a pick-up in domestic
construction, with RM12.4bn worth of targeted tenders in Malaysia.
Figure 6: Government development expenditure (RM/bn)
0
10
20
30
40
50
60
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010e
Source: Bank Negara Malaysia
Beneficiary of small jobs. YTD the average size of domestic contracts bagged by listed contractors is
RM155m, which implies that most jobs are mid-small sized in nature. We believe Sunway is one of the
main beneficiaries as most of its domestic jobs are worth RM110m on average.
Participating chance with LCCT. Five contractors are said to have been shortlisted for the Low Cost
Carrier Terminal (LCCT) building (RM750m-RM850m) and satellite tower (RM400m-RM500m). The
contractors are Sunway, IJM Corp (BUY, TP: RM5.45), UEM-Bina Puri JV, Gadang-PPC JV and AHT
Norlan-Carriage JV. Along with IJM, we think that Sunway has a decent participating chance in the
project. Sunway has worked with Malaysia Airports Holdings (TRADING BUY, TP: RM5.50) on various
structures at Subang Airport (RM120m). Track record aside, we believe that Sunway has the power to
make competitive bids which is a key criterion for securing jobs on open tender. For example, Sunway
made the 2nd
lowest bid for the LCCT EW1 package (RM363m).
Good track record in Putrajaya. In the past 5 years, Sunway has been awarded RM770m worth of
contracts from Putrajaya Holdings SB, the master developer for Putrajaya (Malaysias government
administration centre). The developer intends to call for RM1bn worth of tenders comprising office
towers, commercial blocks and residential units in Putrajaya in the coming months. It has said that
names like Sunway, IJM, UEM Builders, Ahmad Zaki (BUY, TP: RM1.16) and Ireka Corp (NR) would
be invited to put it their bids. We believe Sunway stands to get a slice of the pie given its vast
experience there.
Figure 7: Projects secured from Putrajaya Holdings SB in the past 5 years
Date Project RM/m
29-Sep-09 Hotel and office tower Plot PZ10, Parcel Z, Precint 1 147.4
28-Jan-08 Remaining infra works at Precint 11 109.6
26-Sep-07 Govt office building, Lot4G10, Precint 4 273.2
26-Sep-07 Govt office building, 4G11 & 4T4A, Precint 4 246.8
Contracts from Putrajaya in past 5 years 777.0
Source: Bursa announcements
8/9/2019 Sunway Initiating Coverage 20100521 OSK
5/13
OSK Research
OSK Research | See important disclosures at the end of this report 5
SunCitys preferred contractor. Sunway is the preferred contractor for its sister company, SunCity, a
property developer. As preferred contractor, Sunway gets to match the lowest bidder in a tender. So
far, Sunways success rate in SunCity projects is about ~50% although the latter employs the open
tender system. Various development projects in the pipeline for SunCity are collectively worth
RM700m-RM800m, including Sunway Pyramids mall extension, a corporate tower, Sunway college
extension and some residential units. We opine that Sunway should be able to gain a share of the
construction works given its track record with SunCity. Over the last 5 years, Sunway has bagged
RM758m worth of construction works from SunCity.
Figure 8: Projects from SunCity in the past 5 years
Date Project RM/m
17-May-10 Various works for office tower & car park, Sunway 88.0
12-Feb-10 100 units of residential homes, Shah Alam 21.5
12-May-08 Various structures at Sunway South Quay 12.7
09-Oct-07 Pilling and substructure works, Kiara Hills Phase 3 42.8
05-Mar-07 Sunway Medical Centre extension 85.0
30-Dec-05 Shopping complex at Seberang Perai Tengah 90.3
19-Sep-05 Several campus buildings for Monash University 119.2
04-Feb-05 Pyramid mall extension 298.7
Contracts from SunCity in past 5 years 758.2
Source: Bursa announcements
Legoland job up for grabs. In March, Iskandar Malaysias developer Iskandar Investment called fortenders for the construction of Legoland Malaysia Theme Park (RM700m). The 2 packages being open
for tender comprise (i) primary infra, and (ii) service & admin building, car parks and substation. We
see Sunway possibly winning some packages involving the theme park construction. Sunway had
previously constructed the Sunway Lagoon Theme Park and the Lost World of Tambun.
More from Arzanah. Management is positive on prospects in the Middle East, particularly Abu Dhabi
given the higher margins and the emirates tax free status. In September 2008, Sunway together with
Abu Dhabi-based Silver Coast LLC were awarded the construction works for Rihan Heights worth
RM1.6bn (RM1.2bn outstanding). Sunway has a 60% stake in the job and profits will be recognized as
contributions from JV entities (equity method). Rihan Heights comprises 5 blocks of high end condos,
townhouses and a clubhouse, representing Phase 1 of the Arzanah Development. Arzanah is a joint
development between Mubadala (owned by the Abu Dhabi Govt) and CapitaLand (NEUTRAL, TP:
SGD4.32). We gather that tenders for Arzanahs Phase 2 could be called next year and believe thatSunway could potentially secure some works given its existing relationship with the developers.
Figure 9: Artist impression of the entire Arzanah Development in Abu Dhabi
Source: www.mubadala.ae
Indian road jobs. India intends to construct 53,639km of roads in 7 phases from now up to 2012
which will cost USD66bn. Some USD20bn worth of road contracts are expected to be awarded by 1H
2010. While Indias road construction target is at 20km/day, we gather that the current rate is only 50%
due to land acquisition issues. The Malaysian contractors we contacted feel that Indian contractors can
only hit 60% of the daily target due to capacity constraints. This implies that the balance 40% must be
fulfilled by foreign contractors. While margins in India are rather thin, we gather that Malaysias
Construction Industry Development Board (CIDB) is currently in negotiations with the National
Highway Authority of India (NHAI). Under the proposed framework, NHAI will allocate some of the road
projects to CIDB, which will then decide how to dish them out to Malaysian contractors.
8/9/2019 Sunway Initiating Coverage 20100521 OSK
6/13
OSK Research
OSK Research | See important disclosures at the end of this report 6
Vast experience in India. We feel that Malaysian contractors such as Sunway have the advantage in
securing these Indian road jobs given their experience in the country. Sunway has completed RM976m
worth of roads in India so far, with RM138m outstanding. Sunway intends to bid for RM3bn-RM4bn
worth of jobs there.
Precast potential. The Singapore Government intends to build more than 12,000 units of Housing
Development Board (HDB) flats over the next 1 year to replenish existing inventory, which has been
sold down. We understand that it is mandatory to use precast concrete structures for HDB flats given
their efficiency (less labour intensive). We gather that some SGD700m (~RM1.6bn) worth of precastconcrete will be needed to fulfill Singapores HDB flat construction target. Sunway is a key beneficiary
from this as it has a plant in Tampines with a capacity of 350-400m3/ day (equivalent to ~SGD100m pa
in value). Currently, Sunway has a contract to supply precast concrete worth RM550m (72%
outstanding) to various HDB developments.
PROPERTY DIVISION
Targeting more launches. Sunways property developments have an outstanding GDV of RM1.9bn
based on its effective stake. All its local developments are located in the Klang Valley. We expect
domestic property sales to remain strong this year, underpinned by a recovering domestic economy.
OSK-DMGs economics team projects Malaysias GDP to grow by 7% in 2010. Management said it
expects to launch RM750m-RM800m worth of developments this year.
Figure 10: Sunways property developments (RM/m)
Development Type GDV Stake Share
Bangi Commercial 151 100% 151
Jalan Senang, Singapore Residential 1,080 30% 324
Sungai Long Residential 553 80% 442
Melawati 2 Residential 48 100% 48
Mont Putra Mixed 156 100% 156
Jiangyin, China Mixed 473 26% 123
Templer's Park Residential 500 60% 300
Puncak Jalil Residential 120 65% 78
Taman Equine Residential 250 100% 250
Total 3,331 1,872
Source: Company
Figure 11: Units of houses launched, soldand sales rate in the Klang Valley
Figure 12: Malaysias quarterly GDP growth
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Launched Sold
Sales rate
Source : Jones Lang Wootton
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Q
106
Q
206
Q
306
Q
406
Q
107
Q
207
Q
307
Q
407
Q
108
Q
208
Q
308
Q
408
Q
109
Q
209
Q
309
Q
409
Q
110
Q
210
Q
310
Q
410
Source : Bank Negara Malaysia, OSK-DMG estimates
Strong sales under DBSS. Sunways exposure to the Singapore property market is via its 30% stake
(70% by Hoi Hup Group) in two Design-Build-Sell Schemes (DBSS), namely the City View @ Boon
Keng and The Peak @ Toa Payoh. Both developments are public sector housing comprising HDB
flats. We expect strong earnings from these 2 developments over the next 2 years, with profits equity
accounted for under associate contributions. Sunways portion of the unbilled sales for both
developments now stands at RM543m. City View has a GDV of SGD421m and has been fully sold,
8/9/2019 Sunway Initiating Coverage 20100521 OSK
7/13
OSK Research
OSK Research | See important disclosures at the end of this report 7
with construction progress now hitting 80%. On the other hand, The Peaks GDV stands at SGD680m
and is 90% sold. Its construction has reached 20% and momentum should further pick up in the
coming months.
Singapore private housing venture. Given its success with the first two public housing
developments, Sunway (together with Hoi Hup Group) have decided to venture into Singapores
private housing market. Earlier this year, it acquired 4.75 acres of land in Jalan Senang, which will be
developed into 8 blocks of 12-storey apartments comprising 500 units in total. The estimated GDV is
SGD420m and Sunway intends to launch the entire portion this year. Management has guided for the
developments profit margins to come in at 15% (at PBT level). We estimate that the bulk of theearnings recognition for this development will take place in FY11-12.
QUARRY DIVISION
Domestic operations. Sunway re-entered the quarry business in 2005 with 3 quarries. Today, it has 7
quarries and 7 asphaltic plants across Peninsular Malaysia. The quarry plants are used to crush the
rocks from its quarries into aggregates which are then either sold directly or sent to the asphalt plants
to be processed into asphaltic premix. We understand that prices of inch aggregates in Malaysia
have been on the uptrend and currently stand at RM25/tonne. Utilisation rates for Sunways quarry
plants now stand at ~60%, suggesting that there is upside potential once demand picks up fuelled by
stronger construction activities. Within the Klang Valley, Sunway has a 10% share of the market for
aggregates and 20% for asphaltic premix.
Figure 13: Details of Sunways quarryplants
Figure 14: Prices of inch aggregates inthe Klang Valley (RM/tonne)
Location Production Capacity Reserve
(MT/ month) (MT/m)
K.Kangsar 35,000 70,000 21
Rawang 60,000 100,000 8
Cheras 30,000 70,000 96
Kajang 150,000 200,000 27
Paka 35,000 60,000 25
Malacca 50,000 100,000 8
Taiping 40,000 70,000 21
Total 400,000 670,000 206
Source : Company
24
15
19
22
25
-
5
10
15
20
25
30
1996 2007 Jan-08 Jul-08 Jan-10
Source : Company
Foreign operations. Sunway also operates 2 quarries in Hanoi and Ho Chi Minh City, Vietnam with a
monthly production of 140,000 tonnes and capacity of 210,000. The aggregates from these quarries
are mainly used to produce ready-mixed concrete. In 2008, Sunway secured a contract for the annual
supply of 1m tonnes of aggregates for 5 + 5 (optional) years to the government of the Republic of
Trinidad and Tobago. Since it commenced operations in mid-2008, only 0.5m tonnes have been
delivered, implying that > 1m pa must be fulfilled in the coming years. Selling prices in the republic are
at RM54/ tonne, which is about 2x the price in Malaysia.
TRADING DIVISION
Sunways trading division comprises the following sub segments:
Hoses & fittings: This sub segment is the main contributor to the trading division. Its
hydraulic hoses are sold under its own brand, SunFlex. In Singapore, SunFlex has a 50%
market share for hose replacement, particularly in the O&G and marine sector.
Heavy equipment parts: Products include undercarriages, undercarriage frames and engine
parts under the brands SunTrak and FP Diesel.
Heavy equipment: Mainly equipment for construction and industrial uses (e.g crawler drills,
concrete pump, wheel loaders, crushers and generator sets).
8/9/2019 Sunway Initiating Coverage 20100521 OSK
8/13
OSK Research
OSK Research | See important disclosures at the end of this report 8
Figure 15: Products under Sunways trading division
Source: Company
BUILDING MATERIALS DIVISION
Small but steady. The building material division is Sunways smallest. We expect contributions from
this division to be about 5%-6% of group revenue. The sub segments in this division comprise:
Pipes: Sunway has a 45% share in the domestic pipes market. It currently has an annual
production of 41,000 tonnes and is targeting to achieve 52,000 tonnes. The pipes sub
segment contributes 50% to the entire building materials division.
Pavers: This product is commonly used along pedestrian walkways. Sunway has an annual
production of 1.8m m2 with a target of 2.4m m2 and has been increasing its market share in
China, Australia and Brunei. Pavers make up 40% of the building materials division.
Wall panels: Mainly sold in Malaysia and Singapore. Contributes 10% to building materials.
Figure 16: The various products under Sunways building materials division
Source: Company
8/9/2019 Sunway Initiating Coverage 20100521 OSK
9/13
OSK Research
OSK Research | See important disclosures at the end of this report 9
FINANCIAL HIGHLIGHTS
Let bygones be bygones. We wont deny it, but Sunways earnings track record has been rather
bumpy. Losses in FY02 were mainly due to impairment of various items amounting to RM143m. After
2 decent years of profits from FY03-04, Sunway was again in the red from FY06-07 as a result of
losses from then associate SunInfra (36.2% stake). In 2008, Sunway disposed off its stake in SunInfra
and has started clean since. Moving forward, earnings growth for FY10-12 will be underpinned by the
construction and property divisions. We also expect bigger contributions from its associates & JV
entities mainly arising from works at Arzanah and its Singapore property ventures. All in all, we
forecast a 3-year earnings CAGRf of 27.5%. The upside to our estimates could potentially be driven bystronger than expected contracts flow, better property take-up rates and higher margins.
Figure 17: Earnings track record of Sunway (RM/m)
(187)
74
39
(12) (9)
100110
120139
152
(200)
(150)
(100)
(50)
-
50
100
150
200
FY02 FY03 FY04 FY06 FY07 FY08 FY09 FY10f FY11f FY12f
Note: FY06 and FY09 are a 18 month period due to change in financial year.Source: Company, OSK Research
Trimming its net gearing. Sunways net gearing has come off substantially from 269% in FY02 to
63% currently. In efforts to further cut its net gearing, Sunway has begun divesting its non-core assets
such as Plaza Masalam (RM74m) and Sunway Hanoi Hotel (RM59m). The company has identified
another RM120m worth of such assets that will be progressively sold. These include Wisma Mas
(RM40m) and some portions of the Subang Square (RM36m). Conversion of its outstanding warrants(~246m @ RM1.30 exercise price) would raise another RM320m in cash. Sunway is targeting to
achieve a net gearing ratio of below 50% (currently 63%). Without factoring in the asset sales and
warrants conversion, Sunway should hit this target in FY11 mainly from cash collections from its
construction and property developments.
Figure 18: Net gearing trend for Sunway (%)
269
136
8594
11295
6356
47 40
-
50
100
150
200
250
300
FY02 FY03 FY04 FY06 FY07 FY08 FY09 FY10f FY11f FY12f
Source: Company, OSK Research
8/9/2019 Sunway Initiating Coverage 20100521 OSK
10/13
OSK Research
OSK Research | See important disclosures at the end of this report 10
VALUATION & RECOMMENDATION
Initiate with BUY, RM1.96 TP. Large cap contractors (market cap > RM1.5bn) within our coverage are
currently trading at 14.7x CY10 earnings. Given Sunways higher net gearing, we are ascribing a lower
earnings multiplier of 12x its FY10 EPS, which translates into a 17.2% discount to its peers. As
Sunway has a sizable number of warrants and ESOS relative to its current share base, we have made
the assumption that that 50% of these were converted, to arrive at our EPS (i.e partial dilution). We
initiate coverage on Sunway with a BUY rating and RM1.96 TP.
Figure 19: PER multipliers (x) of Sunways peers based on CY10 earnings
17.5 17.5
13.8
9.9
7.4
0
2
4
6
8
10
12
14
16
18
20
IJM Corp Gamuda WCT Mudajaya Sunway
Note: Sunways PER has not been diluted for warrants and ESOSSource: Bloomberg, OSK Research
8/9/2019 Sunway Initiating Coverage 20100521 OSK
11/13
OSK Research
OSK Research | See important disclosures at the end of this report 11
APPENDIX: Construction contracts secured by Sunway since 2005
Date Project RM/m Client
17-May-10 Subcontract for stones & tilling, Arzanah Development 65.7 Silver Coast - Sunway Innopave
17-May-10 Various works for office tower & carpark, Sunway 88.0 Sunway City
01-Apr-10 Hotel extension, Impiana KLCC (Phase 2) 88.0 Heritage Land SB
12-Feb-10 100 units of residential homes, Shah Alam 21.5 Sunway City
04-Dec-09 Pilling & substructure, Jln Tun Abdul Razak, Johor 23.4 D'sara Assets SB
29-Sep-09 Hotel and office tower Plot PZ10, Parcel Z, Precint 1 147.4 Putrajaya Holdings
26-May-09 MEP works for Arzanah Dev - Rihan Heights (Phase 1) 326.0 Silver Coast - Sunway Innopave
06-Nov-08 Precast concrete supply contract in Singapore 408.1 Straits Construction Co
23-Sep-08 Arzanah Development - Rihan Heights (Phase 1) 1,080.0 Capitala
16-Jul-08 Pilling & earthworks for mixed development, Mont Kiara 28.6 Aston Star SB
14-May-08 Various structures at MIAC, Subang Airport 119.8 MAHB
12-May-08 Various structures at Sunway South Quay 12.7 Sunway City
21-Apr-08 Substructure for building at Jln Tun Razak 15.6 Delta Heights SB
21-Feb-08 Subcontract for South Klang Valley Expressway 263.6 MEB Construction
28-Jan-08 Remaining infra works at Precinct 11 109.6 Putrajaya Holdings
09-Oct-07 Pilling and substructure works, Kiara Hills Phase 3 42.8 Sunway City
26-Sep-07 Govt office building, 4G11 & 4T4A, Precinct 4 246.8 Putrajaya Holdings
26-Sep-07 Govt office building, Lot4G10, Precinct 4 273.2 Putrajaya Holdings
23-May-07 Highway connectivity to ICTT at Vallarpadam, Cochin 137.3 NHAI05-Mar-07 Sunway Medical Centre extension 85.0 Sunway City
08-Oct-06 Zone C, Phase 1, Plot 1, Al Reem Island 330.0 Tamouh Invetments
27-Jul-06 Pilling & substructural works for condo in BU 26.9 Bandar Utama Dev
27-Jul-06 Blocks A1-A4 for Solaris Dutamas 40.4 Aston Star SB
28-Jun-06 Basement B1-B7 for Solaris 2 154.9 Aston Star SB
17-Jan-06 Distribution warehouse, Bukit Jelutong 54.9 Zuellig Pharma SB
30-Dec-05 Shopping complex at Seberang Perai Tengah 90.3 Sunway City
19-Sep-05 Several campus buildings for Monash University 119.2 Sunway City
05-Jul-05 NH76 (km406-449.15), Rajasthan 284.2 NHAI
05-Jul-05 NH25 (km104-170), Uttar Pradesh 411.3 NHAI
20-May-05 Subcontract for UiTM new campus 181.0 Haluan Prisma SB
13-May-05 Subcontract for Maju Expressway 165.0 Maju Holdings
05-May-05 Ministry of Legal Affairs Tower, Trinadad & Tobago 220.8 Urban Dev Corp
30-Mar-05 18 story apartment at Jln Tun Razak 56.7 Nirwana Indah SB
04-Feb-05 Pyramid mall extension 298.7 Sunway City
Source: Bursa announcements
8/9/2019 Sunway Initiating Coverage 20100521 OSK
12/13
OSK Research
OSK Research | See important disclosures at the end of this report 12
EARNINGS FORECAST
FYE Dec (RMm) FY08 FY09^ FY10f FY11f FY12f
Turnover 1,825.2 2,639.2 1,909.5 2,105.5 2,483.9EBITDA 191.0 201.1 167.4 214.2 266.6PBT 128.5 153.2 159.7 187.7 209.1Net Profit 100.2 109.8 120.4 138.6 151.9EPS (sen) 16.6 18.3 20.0 23.0 25.2DPS (sen) 2.0 - 2.0 2.3 2.5
MarginEBITDA (%) 10.5 7.6 8.8 10.2 10.7PBT (%) 7.0 5.8 8.4 8.9 8.4Net Profit (%) 5.5 4.2 6.3 6.6 6.1ROE (%) 18.1 16.0 14.6 14.7 14.2ROA (%) 4.9 5.1 5.1 5.5 5.6Balance SheetFixed Assets 722.7 956.9 1,004.3 1,051.1 1,091.7Current Assets 1,299.6 1,349.9 1,411.6 1,529.3 1,742.2Total Assets 2,022.3 2,306.9 2,415.9 2,580.4 2,833.9Current Liabi lit ies 906.4 1,018.1 1,059.8 1,136.6 1,286.8Net Current Assets 393.2 331.9 351.8 392.6 455.3LT Liabilities 470.8 429.6 388.5 351.4 318.1Shareholders Funds 645.2 859.2 967.6 1,092.3 1,229.0
Net Gearing (%) 95.1 63.4 56.3 46.7 40.2Note: FY09^ is an 18-month period due to change in financial year from June to Dec. Per share datahas not been diluted for warrants(246.7m) and ESOS (24.9m)
8/9/2019 Sunway Initiating Coverage 20100521 OSK
13/13
OSK Research
OSK Research | See important disclosures at the end of this report 13
OSK Research Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated (NR): Stock is not within regular research coverage
All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressedwill be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities orfinancial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investmentdecision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interestand/or underwriting commitments in the securities mentioned.
Distribution in Singapore
This research report produced by OSK Research Sdn Bhd is distributed in Singapore only to Institutional Investors, Expert Investors orAccredited Investors as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an Institutional Investor, Expert Investoror Accredited Investor, this research report is not intended for you and you should disregard this research report in its entirety. In respect of anymatters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd(DMG).
All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Research.Published and printed by :-
OSK RESEARCH SDN. BHD. (206591-V)(A wholly-owned subsidiary of OSK Investment Bank Berhad)
Chris Eng
Kuala Lumpur Hong Kong Singapore Jakarta Shanghai
Hong Kong OfficeOSK SecuritiesHong Kong Ltd.
12th Floor,World-Wide House19 Des Voeux RoadCentral, Hong Kong
Tel : +(852) 2525 1118Fax : +(852) 2810 0908
Malaysia Research OfficeOSK Research Sdn. Bhd.
6th Floor, Plaza OSKJalan Ampang
50450 Kuala LumpurMalaysia
Tel : +(60) 3 9207 7688Fax : +(60) 3 2175 3202
Singapore OfficeDMG & Partners
Securities Pte. Ltd.20 Raffles Place
#22-01 Ocean TowersSingapore 048620
Tel : +(65) 6533 1818Fax : +(65) 6532 6211
Shanghai OfficeOSK (China) Investment
Advisory Co. Ltd.Room 6506, Plaza 66
No.1266, West Nan Jing Road200040 Shanghai
ChinaTel : +(8621) 6288 9611Fax : +(8621) 6288 9633
Jakarta OfficePT OSK Nusadana Securities
IndonesiaPlaza Lippo, 14th Floor,
Jln. Jend. Sudirman Kav 25,Jakarta 12920
IndonesiaTel : +(6221) 520 4599Fax : +(6221) 520 4598