Sunway Bhd
(Oct 10, RM1.69)
Maintain buy with an unchanged target price (TP) of RM2.17: We took a group of fund managers/analysts to visit the Sunway Medical Centre Velocity (SMCV). The managing director of the healthcare unit, chief executive officer of Velocity Hospital and management team took us around the various units. We came out feeling positive about its prospects. Here are the key takeaways.

 
SMCV did its soft launch on Sept 3 and is located in a 10-storey building next to the Sunway Velocity Mall and Hotel. The hospital has a capacity of 240 beds and 77 specialist clinics once fully operational by end-2020. As a start, it currently operates on 120 beds with 45 clinics and since its soft launch, it has received over 1,000 patients. Interestingly, the first baby delivered in the maternity ward was a Chinese national, anecdotally indicating its attractiveness to foreigners. The hospital runs an e-Medical Report system whereby data of patients are all digitalised, allowing for more efficient data processing and reducing the waiting time before and during consultations. The hospital has attracted doctors with an equal mix from both the private and government sectors.

Sunway’s flagship hospital, Sunway Medical Centre (SMC) located in Bandar Sunway, is currently undergoing its phase 4 expansion (targeted to complete by 2022), which will house additional specialist clinics, an assisted living centre and additional hospital beds. SMC is also migrating its data system to e-Medical Report from its conventional physical report cards.

 We think this will be a cheaper entry to the healthcare sector via Sunway Bhd (trading at forward price-to-earnings ratio of 12 times [x]) as compared to IHH Healthcare Bhd (37x) and KPJ Healthcare Bhd (19x). With the listing of the healthcare business potentially on the cards, Sunway’s healthcare business is estimated to fetch a valuation of  about RM1.5 billion (based on financial year 2018 net profit and a price multiple of 25x), with further upside as expansion of the business is ongoing.

We maintain “buy” with an unchanged TP of RM2.17 based on a 10% holding discount from sum of parts-derived valuation of RM2.41. Sunway remains our top pick given its well-integrated property and construction development. Its hidden gem, the healthcare business (with four new hospitals coming on-stream over the next three years) has yet to be appreciated as it is embedded within the parent company. These, coupled with the resilient earnings from mature investment properties alongside its growing building materials business and quarry operations, justify the rerating of the stock. — Hong Leong Investment Bank Research, Oct 10