Sunway Holdings 1QFY09: More bad news

December 10, 2008 at 6:43 am Leave a comment

• Below expectations.
1QFY09 results were significantly below house and market expectations. Annualised 1QFY09 net profit came in at 51.2% and 54.8% of house and consensus estimate respectively. No dividends were proposed during the quarter.
• Revenue +5.7% y-o-y, net profit -34.0% y-o-y.
Marginal increase in revenue was mainly due to higher contributions from the trading and building materials segment. However, net profit was significantly lower by 34% y-o-y due to higher operating costs. In particular, the group was adversely impacted by higher transportation cost for the supply of aggregates to Singapore which has seen the EBIT margin of the quarry division halved from 21.6% a year ago to just 11.4% now. However, margin is expected to improve in the 2HFY09 as diesel prices have since declined significantly.
• Slow earnings recognition from construction jobs.
Current quarter’s under-performance was also due to the non-recognition of major construction jobs such as the Putrajaya government buildings and SKVE highway which have just started works. The company has an internal policy of only recognising construction earnings once it has
reached at least 20% completion. As such, we expect earnings to be stronger in 2HFY09 when these jobs cross the hurdle rate of 20%. Outstanding order book now stands at RM4.1bn.
• Expect slower property launches.
The group’s “Sunway PJ@51a” commercial project has only achieved 10% take-up so far and the project is now being put on hold until en-bloc purchasers can be secured. New projects to be launched such as Termuning and Toa Payoh may also be at risk.
• Earnings revision.
We slash our estimates for FY09 and FY10 by 25.0% and 30.6% respectively due to lower quarry margin and slower project launches.
• BUY call maintained but target price trimmed.
We revise our target price from RM1.07 to RM0.92 which is derived by ascribing a 50% discount to a lower sums-of-part value of RM1.84 (previously RM2.14).

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