PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
26 May 2010
MARKET DATELINE

Sunway Holdings Share Price

Fair Value
:
:
RM1.31
RM1.69
1QFY12/10 Net Profit More Than Doubles From A Recom : Outperform
(Maintained)
Year Ago

Table 1 : Investment Statistics (SUNWAY; Code: 4308) Bloomberg: SGW MK

Turn- Net FD Net
FYE over Profit# EPS# Growth PER EPS# C.EPS* P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (sen) (x) (x) (%) (%) (%)
2009** 2,589.9 109.3 13.6^ (27.0) 9.6 - - 8.1 1.2 9.5 0.6 1.7
2010f 2,406.9 128.6 21.4 57.5 6.1 16.9 19.0 11.8 1.0 14.3 0.5 2.2
2011f 2,230.9 136.2 22.7 5.9 5.8 17.8 21.0 15.5 0.9 13.2 0.5 2.2
2012f 2,643.2 156.3 26.0 14.8 5.0 20.2 21.0 11.6 0.7 13.1 0.4 2.2
Main Market Listing /Non-Trustee Stock / Syariah-Approved Stock By The SC #Excluding EI * Consensus Based On IBES
E i
**18M ^Annualised

♦ No issue. Excluding RM4.6m gains on derivatives, adjusted 1QFY12/10 net RHBRI Vs. Consensus
Above
profit of RM35.3m came in within our expectation at 27% of our full-year
In Line
forecast but beat the market at 29% of the full-year market consensus. Below

♦ Eyeing RM16bn worth of new jobs. Sunway is eyeing new jobs worth a Issued Capital (m shares) 601.7
total of RM16bn in the local and overseas markets and is confident about Market Cap(RMm) 788.3
bagging RM1.5bn annually. YTD, Sunway has secured RM198m worth of Daily Trading Vol (m shs) 1.1
new jobs comprising: (1) 100 residential units and a TNB substation in Shah 52wk Price Range (RM) 0.78-1.68
Alam from SunCity (RM22m); (2) Impiana Hotel in KLCC (RM88m); and (3) Major Shareholders: (%)
An office tower in Bandar Sunway from SunCity (RM88m). (We exclude the Tan Sri Jeffrey Cheah 43.3

recently secured AED74.5m (RM65.7m) contract for the supply and

installation of stones and tiling works for the Arzanah Development in Abu
Dhabi as it is a sub-contract to Sunway’s existing turnkey contract for the FYE Dec FY10 FY11 FY12
project.) EPS Revision (%) - - -
Var to Cons (%) +13 +8 +24
♦ Forecasts. Maintained.
Share Price Chart
♦ Risks. The risks include: (1) New construction contracts secured in FY12/10-
12 coming in below our target of RM1.5bn; and (2) Rising input costs.

♦ We are Neutral on the construction sector. On one hand, we foresee

improved investors’ risk appetite for construction stocks following: (1) The
massive underperformance of the sector vis-à-vis the market in 4Q2009 and
1Q2010; and (2) A better sector news flow and new expectations leading up
to the announcement of the 10th Malaysia Plan (10MP) in June 2010. On the
other hand, certain negative elements remain such as: (1) The still slow pace Relative Performance To FBM KLCI
of the roll-out of public projects, shrinking margins and declining dominance
of established players in large-scale projects locally; and (2) The not-so-rosy
outlook and increased operating risks in key overseas markets (following the Sunway Holdings
Dubai credit crisis, Dong’s devaluation and rising arbitration cases).

♦ Maintain Outperform. However, we are positive on Sunway as its

valuations are undemanding. Indicative fair value is RM1.69 based on 10x
FBM KLCI
fully-diluted FY12/10 EPS of 16.9sen, in line with our benchmark 1-year
forward target PER for the construction sector of 10-14x.

Joshua CY Ng
(603) 92802151
joshuang@rhb.com.my
Please read important disclosures at the end of this report.

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Table 2: Earnings Review (YoY)
FYE Dec 2009 2010 YoY Observations/Comments
(RMm) 3M 3M Chg
Turnover 381.6 501.7 31%
Construction 182.7 281.3 54% Key new projects hit significant billing milestones.
Property 8.0 40.1 >100% Reflective of the recovery in the property sector.
Trading & Manufacturing 111.9 136.1 22% Recovery in demand for building materials, oil & gas and heavy equipment.
Quarry 73.8 41.0 (45%) No significant pick-up in local construction activities, and hence demand for
aggregates.
Others 5.2 3.2 (38%)
EBIT 13.2 42.9 >100% Stronger performance across the board except for quarry.
Construction 2.8 26.5 >100% Topline growth coupled with recovery in margins.
Property (0.8) 5.9 nm Reflective of the recovery in the property sector.
Trading & Manufacturing 2.6 8.5 >100% Recovery in demand for building materials, oil & gas and heavy equipment.
Quarry 10.9 2.1 (81%) Poor overhead absorption on weak aggregates sales volume.
Others (2.4) (0.1) (95%)
Net inc/(exp) (9.3) (7.8) (16%)
Associates 14.1 10.7 (24%) Normal quarterly fluctuation in contribution from 30%-owned City View @ Boon Keng
property project in Singapore.
EI 0.0 4.6 nm Gains on derivatives.
Pretax profit 17.9 50.4 >100%
Taxation (2.4) (9.3) >100%
Minority interest (0.0) (1.2) >100%
Net profit 15.5 39.9 >100% Stronger performance across the board except for quarry.
EPS (sen) 3.0 6.9 >100%

Construction EBIT margin 1.6% 9.4% 7.9% pts Low base in FY09 due to high input costs. Margins in FY10 were boosted by the high-
margin Rihan Heights project.
EBIT margin 3% 9% 5% pts
Pretax margin 5% 10% 5% pts
Effective tax rate 13% 18% 5% pts

Table 3: Earnings Review (QoQ)

FYE Dec 2009 2010 QoQ Observations/Comments
(RMm) 6Q 1Q Chg
Turnover 501.6 501.7 0%
Construction 260.0 281.3 8% Normal quarterly fluctuation.
Property 41.7 40.1 (4%) Normal quarterly fluctuation.
Trading & Manufacturing 148.4 136.1 (8%) Normal quarterly fluctuation.
Quarry 45.6 41.0 (10%) No significant pick-up in local construction activities, and hence demand for aggregates.
Others 5.8 3.2 (45%)
EBIT 25.4 42.9 68% Stronger performance across the board.
Construction 15.9 26.5 66% Stronger topline and margins.
Property 4.3 5.9 37% Product mix skewed towards high-margin properties.
Trading & Manufacturing 5.8 8.5 48% Normal quarterly fluctuation in margins depending on product mix.
Quarry 0.1 2.1 >100% Better cost control.
Others (0.6) (0.1) (81%)
Net inc/(exp) (8.0) (7.8) (2%)
Associates 19.2 10.7 (44%) Normal quarterly fluctuation in contribution from City View @ Boon Keng.
EI 0.0 4.6 nm Gains on derivatives.
Pretax profit 36.7 50.4 37%
Taxation (9.5) (9.3) (2%)
Minority interest (3.2) (1.2) (62%)
Net profit 24.1 39.9 66% Stronger performance across the board.
EPS (sen) 4.2 6.9 66%

Construction EBIT margin 6.1% 9.4% 3.3% pts Boosted by the high-margin Rihan Heights project.
EBIT margin 5% 9% 3% pts
Pretax margin 7% 10% 3% pts
Effective tax rate 26% 18% (7% pts)

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 Table 4: Outstanding Construction Orderbook
Project Outstanding Works
(RMm)
Overseas
Rihan Heights, Arzanah Development in Abu Dhabi, UAE (excluding M&E and stone & tiling works) 469^
Rihan Heights, Arzanah Development in Abu Dhabi, UAE (M&E) 216*
Rihan Heights, Arzanah Development in Abu Dhabi, UAE (stone & tiling works) 46#
Pre-cast concrete components in Singapore 354
Road projects in India 48
Al Reem Island, Abu Dhabi 91
Total 1,224

Local
Government office towers in Precinct 4, Putrajaya 297
Hotel and office tower in Precinct 1, Putrajaya 144
Impiana KLCC (Phase 2) 88
Sunway office tower (substructure) 88
South Klang Valley Expressway 34
Others 149
Total 800

Grand Total 2,024

^60% share of RM782m *75.1% share of RM288m #70% of RM65.7m
Source: Company, RHBRI

Table 5: Earnings Forecasts Table 6: Forecast Assumptions

FYE Dec (RMm) FY09a* FY10F FY11F FY12F FYE Dec FY10F FY11F FY11F

Turnover 2,589.9 2,406.9 2,230.9 2,643.2 Construction EBIT margin (%) 7.1 6.9 6.5
Turnover growth (%) -5.3 39.4 -7.3 18.5 New orderbook secured (RMm) 1,500 1,500 1,500

EBITDA 178.8 238.8 226.0 250.0

EBITDA margin (%) 6.9 9.9 10.1 9.5

Depreciation -43.0 -45.1 -47.4 -49.8

Net Interest -54.0 -34.9 -34.1 -33.1
Associates 72.2 38.3 53.9 53.9
EI 0.0 0.0 0.0 0.0

Pretax Profit 153.9 197.0 198.5 221.0

Tax -33.9 -42.0 -45.3 -52.4
PAT 120.1 155.0 153.2 168.7
Minorities -10.8 -26.4 -17.0 -12.3
Net Profit 109.3 128.6 136.2 156.3
*18M ^Annualised
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
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may from time to time have an interest in the securities mentioned by this report.

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of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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