KUALA LUMPUR: CIMB Equities Research is retaining its Add call for Sunway Bhd after its core net profit for the nine months ended Sept 30, 2017 made up 79% of its full-year forecast and 83% of Bloomberg consensus.

It said on Tuesday the results were above expectations due to lower tax rates and it expects a stronger 4Q17 on the back of construction segment's high-order book and sustainable pretax margin, which stood at 12% in 9M17. Overall, 9M core net profit increased 20% on-year.

“We raise our FY17F EPS by 3.4% to factor in lower tax rates and our FY18-19F EPS marginally by 0.8% due to housekeeping,” it said.

CIMB Research lowered its target price to RM1.92 from RM2.09 as it updated the balance sheet items and the value of selected land bank, still pegged to a 10% realised net asset value (RNAV) discount.

“Our Add call is retained as we continue to be upbeat about the group’s construction prospects driven by major rail and transport upgrade projects in 2018F. Downside risks are weaker earnings and slower order book wins,” it said.

It said all of Sunway’s divisions recorded growth in 9M17 pretax profit, except property development and quarry which posted 29%-72% on-year declines.

Property development recorded pretax margin of 24%, flat on-year despite a revenue decline, likely supported by lower average land cost for selected projects.

The segment's target of RM1.1bil effective property sales remains intact. Effective unbilled sales stood at RM766mil as at end-9M17.

Recall that in October, Sunway signed two share sale agreements (SSA) with the Employees Provident Fund (EPF) and Kuwait Finance House (Malaysia) Bhd (KFH) for their 20% stake each in Sunway South Quay (SSQ).

Sunway is forking out a total of RM273.3mil cash for the 40% stake and repay the Musyarakah Capital invested by the two vendors, to become the full owner of the lakeside luxury development within Sunway City.

“Sunway does not expect the government’s decision to halt the development orders (DO) of residential properties valued at RM1mil or above per unit, to cap property oversupply in the country, to have a material impact on its property sales outlook in 2018F.

“We understand that most of Sunway’s planned launches next year are below the RM1mil threshold and have obtained the necessary approvals.

“Some units at Sunway Bayou (Sunway South Quay) are priced at above RM1mil but those have largely been approved.

“Sunway’s listed construction arm, Sunway Construction Group has YTD delivered strong order wins of RM3.9bil. This brings its outstanding order book to RM6.8bil.

“The award for an LRT 3 package worth RM2.3bil was its largest win secured YTD, and the largest package awarded for the project's civil works portion,” it said.