Our website is made possible by displaying online advertisements to our visitors.
Please consider supporting us by disabling your ad blocker.

Quarry business seen as Sunway’s new growth pillar

TheEdge Wed, Jun 12, 2019 10:30am - 3 months ago


Sunway Bhd
(June 11, RM1.68)
Maintain buy with an unchanged target price (TP) of RM2.18:
As of Sunway Bhd’s first quarter of financial year 2019 (1QFY19) results, healthcare is now reported as a stand-alone segment, separated from the others segment. About the quarry business, we understand it will be a new pillar of growth moving forward. Recall on April 12, 2019, Sunway Property (Australia) Pty Ltd was incorporated. After the management’s further clarification, we note that operations in Australia are still in the exploratory stage with a possible landbanking in the longer term. Our forecasts remain unchanged as our meeting with Sunway yielded no major surprises.

 
Having recently met the management, we left feeling positive about the company’s prospects. As of 1QFY19 results, the healthcare segment is now a stand-alone segment. The management guided the Sunway Velocity Medical Centre in Cheras will begin operations in August 2019, increasing the total number of beds to 858 from the current 636. Take note the existing Sunway Medical Centre still has more room for about 50 additional beds. With four new hospitals in the pipeline over five years, they will provide further value to unlock via a separate listing of its healthcare business.

Sunway has been looking to grow its quarry business, via the recent acquisition of two companies primarily involved in the same business. Recall the quarry business was Sunway’s forte, before it was sold to Hanson in the late 1990s. After acquiring the two companies, the market share of the aggregates business in the Klang Valley increased to 22%, from 10%, as at March 2019, while nationwide it increased to 15% from 6%. On asphalts, the market share in the Klang Valley and nationwide has increased to 30%, from 20%, and 9% respectively. We understand the quarry business will be a new pillar of growth moving forward, further establishing Sunway as a successful conglomerate.

We expect FY19 property development earnings to be supported by foreign contribution — the Tianjin project, slated to be completed by end-FY19 — of about RM55 million to earnings. Locally, earnings contributions are expected to remain relatively flat. Recall on April 12, 2019, Sunway Property (Australia) Pty Ltd was incorporated. After the management’s further clarification, we note that operations in Australia are still in the exploratory stage with a possible landbanking in the longer term.

With over RM2 billion of matured investment properties, Sunway can monetise its assets via disposal to Sunway Real Estate Investment Trust. Unlocking the assets will only be carried out when needed — to fund capital expenditure and prevent breaching the threshold net gearing of 0.5 times. Our forecasts are unchanged as our meeting with Sunway yielded no major surprises.

We maintained our “buy” call with an unchanged TP of RM2.18 based on a 10% holding discount from sum-of-parts-derived valuation of RM2.42. Despite a downcycle of the property development and construction sectors, we still like the company’s resilient integrated real estate business model and earnings growth prospects with matured investment properties and underappreciated trading and healthcare businesses. — Hong Leong Investment Bank Research, June 11








Related Stocks

SUNREIT 1.890
SUNWAY 1.690

Comments

Login to comment.