This article first appeared in The Edge Financial Daily, on October 23, 2015.

Sunway Bhd
(Oct 22, RM3.04)
Maintain neutral with an adjusted target price (TP) of RM3.20: Sunway Bhd (Sunway) has revised its sales target for financial year 2015 (FY15) to RM1 billion (from RM1.7 billion) amid a cautious property market.

Effectively, this represents a lower sales target by 41%. Accordingly, total project launches have been lowered to RM1.05 billion (from RM2 billion). 

The news is not entirely a surprise to us as we had reduced our FY15 sales estimate earlier in August to RM1.31 billion. However, the amount of reduction is higher than expected as management is now targeting only RM1 billion of sales. 

We believe that this may be caused by the weaker-than-expected property market. As it is, the latest Bank Negara Malaysia statistics show that “Applied Loan for Purchase of Property” for the first eight months of 2015 has declined 7% year-on-year (y-o-y) to RM203.13 billion. Compared with the same period last year, it has declined 12% y-o-y to RM25.68 billion. 

Earnings forecast were trimmed after assuming lower sales. FY15 core net income has been reduced by 2% to RM537.7 million. As for FY16, it has been trimmed by 3% to RM541.7 million. 

Note that our FY15 sales assumption has been lowered by 24% to RM1 billion. FY16 sales have been lowered by 26% to RM1.1 billion. Moreover, we have adjusted the timing of launches for some key property projects in line with the weak market outlook. 

We have reduced our TP by 22 sen to RM3.20 as we have now applied a wider discount to the revised net asset valuation at 20% (from 15%). This is to reflect the weaker-than-expected property market conditions for Sunway. 

We maintain our “neutral” call as we expect minimal catalysts going forward due to weak sales seen in FY15 and FY16. Having said that, the downside is supported by a decent dividend yield of 3.6%. — MIDF Research, Oct 22