Company Name: SUNWAY BERHAD
| Research House: HLG | Price Call: BUY | Target Price: 3.12 |
Positioning For 2012 Post Risk Aversion
'''' Slower growth but no double-dip and Euro debt fallout.
'''' Post earnings revision 2011 and 2012 EPS growth now 6.8% and 10%, 2012 P/E of 12.8x (1.1SD below 5-yr mean), already largely reflecting earnings risk.
'''' However, ST volatility to continue given Euro debt crisis, most indices <200-d SMAs, VIX >30 and looming election.
'''' Cut CI end-11 to 1,440 (13x 2012 P/E ' 1SD <5-yr mean).''
'''' But still LT +ve & intro end-2012 of 1,555 (13x 2013 P/E) given resilient economy, local funds underweighted and ample liquidity will search for returns post risk aversion.
'''' Not expecting 08 type of valuations (9.3x P/E = 2.9SD <5-yr mean and earnings yield of 10.8%).
'''' Persistent volatility implies short-term defensive.
'''' Worst case scenario analysis using Fibonacci Retracement, MYR-FBM KLCI regression and foreign shareholding.''''
'''' 1,280-1,293 (11.6-11.7 P/E or 1.7-1.8SD <5-yr mean & 8.6-8.7% earnings yield) good levels to turn more aggressive post risk aversion and focus on bombed out fundamental stocks that have high liquidity and Beta.
'''' Use 6-mth Beta to project potential prices of top 100 stocks if FBM KLCI hit 1,293, high predictability vs. recent lows.''
'''' Chosen 10 based on Beta >1.5, decent fundamentals and high institution following and avg 3-mth vol >5m.
''
Sunway (BUY)
Double bagger
'''' Sunway has been awarded an RM308.9m contract for the construction of Pinewood Iskandar Malaysia Studios and at the same time won a 99-year land lease tender from the Urban Redevelopment Authority of Singapore (URA) for the development of Jalan Loyang Besar/Pasir Ris Rise (known as Parcel 826) for S$140.96m (~RM345m).
'''' The Iskandar Studio award brings the Group's outstanding order book to ~RM2.7bn, translating to 2.5x FY10's revenue. The latest order also implies a stronger presence in the Iskandar region, hence Sunway may potentially benefit from future developments in this corridor.
'''' The latest Singapore land award has a GFA of 17,274.2 sq m, with a maximum GFA of 36,276 sq m (plot ratio of 2.1x). This translates to a land acquisition cost of S$3,886/sq m. The development is for ~355 condominium units and has a minimum potential GDV of S$375m.
'''' We maintain our BUY call on Sunway with a TP of RM3.12 based on SOP valuation.
''
Malaysia: Revisiting Economic Outlook
'''' We are trimming our 2011 GDP growth forecast to 4.6% from 4.8% reflecting supply and implementation timing issue (mining and construction) as well as gloomier global demand for E&E products (manufacturing).''
'''' For 2012, we are still confident that growth will remain stable at 4.5% as the bunching of construction projects and resilient private consumption are expected to cushion softer manufacturing performance.
'''' On trade, there has been structural change that ASEAN, China and India now collectively account for 41.8% of Malaysia's exports. The share of US, Europe and Japan has declined to 29% from a peak of 39% in 2006.
'''' Inflation is expected to ease slowly to 3.2% in 2011 and 3% in 2012, but bi-annual subsidy removals and new salary scheme for civil servants & pensioners will cause it to stay at an elevated level.
'''' We see BNM holding the OPR steady at 3.00% until end-2012 as the policymaker focuses on growth agenda given the recent external developments while inflation is on moderation trend.
'''' We expect short-term volatility in MYR but long-term appreciation is still intact. Our forecasts are RM3.10/US$ by end-2011 and RM3.00/US$ by end-2012.
''
Performance of IPI (Aug 2011)
'''' IPI expanded by 3.0% yoy in Aug (Jul: -0.5% yoy), better than street estimate of +0.4% on the back of stronger manufacturing (+4.8% yoy; Jul: +1.7% yoy) and slower decline in mining output (-1.4% yoy; Jul: -7.5% yoy).''
'''' Subdued E&E output (-5.7% yoy) continued to drag down IPI growth. Motor vehicle output turned positive (+5.1% yoy) as Japan and new HP act disruption eased. Mining output declined at a slower pace as Petronas maintenance shutdown improved further.
'''' Our estimate shows that 3Q GDP had expanded by 4.5% yoy (2Q: +4.0%). For 2H, we still expect higher GDP growth of 4.7% on the back of resilient consumer spending and improvement in mining output.
'''' We see BNM holding the OPR steady at 3.00% until end-2012 as the policymaker focuses on growth agenda given the recent external developments while inflation is on moderation trend.
''
More sideways consolidation ahead
'''' While momentum and trend indicators remain positive, higher trading volume (preferably one billion shares/day) is crucial to sustain further gains within the upward channel. Upside targets are 1420-1434 whilst supports are near 1385-1393.
''
MPHB: Upside target at RM2.66-2.71''
'''' Based on daily chart, the rising RSI and MACD suggest further upside potential in the short term to retest RM2.54 (30-d SMA), RM2.66 (upper Bollinger band) and RM2.71 (76.4% FR) levels.
'''' Supports are RM2.22-2.39.
'''' Buy on weakness but cut loss below RM2.33.
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