Sunway Bhd, which was reclassified from the properties sector to the trading/services sector in June, is favoured by investors as it is viewed as a better pick to ride out the current cyclical property market slowdown due to its diversified business portfolio.
Unlike other pure developers that have no choice but to weather the lacklustre period, Sunway can focus on its other divisions to cultivate earnings growth while its property sales are slowing.
Investors’ confidence in the company should come as no surprise — if one had purchased 10,000 Sunway shares (worth RM21,600) at end-December 2013, one would have seen a total return of RM10,260 or 47.5% by the end of last year. This includes the 1,000 shares in Sunway Construction Group Bhd (SunCon), which the investor would have received in 2015. This translates into an annual gain of 13.8% for each of the three years up to Dec 31 last year. SunCon’s share price was at RM1.70 at end-2016.
To reward shareholders, Sunway distributed SunCon shares as dividend in specie, on the basis of one distribution per share for every 10 existing Sunway shares held at that time. The construction unit was spun off and listed on Bursa Malaysia in 2015.
SunCon’s share price has been on an upward trend since it was listed, rising from RM1.10 to RM2.02 on June 30 this year.
As for the group’s financial results, Sunway’s core net profit has seen a three-year compound annual growth rate of 6.58%, from RM484 million in the financial year ended Dec 31, 2013 (FY2013) to RM585.9 million in FY2016.
In FY2013, profit after tax was RM1.49 billion with the addition of fair valuation gains, positive impact from a new financial reporting standard (FRS10) and other non-recurring financial gains amounting to RM1 billion.
Sunway’s latest financial results for 1QFY2017 continued to show improvement on higher contribution from all business segments except property. During the quarter, Sunway’s net profit grew 5.7% to RM107.9 million from RM102.1 million in the previous corresponding period. Revenue also edged higher by 2.1% to RM1.09 billion from RM1.07 billion the year before.
The group recently proposed a four-for-three bonus issue with free warrants, which could raise the maximum gross proceeds of RM965.44 million, assuming the full exercise of the warrants at an indicative price of RM1.53 each upon the expiry of the derivatives.
Sunway aims to utilise the proceeds for future working capital purposes, including trade payments and other payables, staff costs and other operating expenses.
The management has also allocated RM1 billion for capital expenditure to build five hospitals in the next five years as the group wants to expand its healthcare unit, with plans to go public in five years.
MIDF Research forecasts that earnings from the healthcare unit will likely double in three to four years’ time from the RM45 million to RM50 million projected by the management for FY2017. The division contributed about 5% to total profit before tax in FY2016 compared with a level below 3% in FY2013.
Over at its property division, Sunway plans to fine-tune its strategy for new launches this year — similar to what it did in 2016. The group only launched RM650 million worth of properties last year compared with RM1.4 billion in 2015, taking a more cautious approach in the light of softer market conditions.
For its property investment and real estate investment trust, the focus will be on asset expansion to drive sustainable growth. Among the key projects to be completed during the year are Sunway GEO Tower and Sunway GEO Avenue Phase 1, both of which are located in Sunway City.
At its construction division, order book remained strong at a record high of RM4.8 billion at end-2016, with about 68% coming from external projects.
This year, Sunway expects its building materials, trading and manufacturing, quarry and healthcare businesses as well as its regional operations — particularly in China and key Asean countries — to be the growth drivers.