CGS-CIMB raised Sunway Bhd’s target price (TP) to RM4.30 given it growing exposure to healthcare, on top of the group’s strong property and construction franchises.
“We raise our SOP-derived TP to RM3.40 as we lift our value for Sunway Healthcare Group (SHG) and Sunway Construction Group Bhd (SunCon) and remove the 10% discount.
“At our new TP, Sunway will trade at FY25F P/E of 18.7x, still below +1 s.d. from mean of 21x since FY12, which we do not think is excessive,” it said in its Company Note today (Jan 31).
It also reiterated its ADD rating.
The research house said SHG’s revenue grew 30% in 2023 and sale of Ramsay Sime Darby Healthcare (RSDH) to Columbia Asia at FY6/23 enterprise value to its earnings before interest, taxes, depreciation and amortization (EV/EBITDA) of 20x or RM6 billion provides a valuation floor for SHG, in its view.
“In our view, SHG should command a premium given its market leading revenue per bed of RM1.3 million versus RSDH’s RM0.85 million while revenue and EBITDA grew at a high clip of 34% and 38% 2-year compound annual growth rate (CAGR) over FY21 to 23.
“We believe the next leg of growth will be anchored by internal expansion at its 3 hospitals and visible pipeline of new hospitals, namely Sunway Medical Centre (SMC) Ipoh and SMC Damansara, which will add a combined total of 600 beds in 4Q24 to 1Q25,” it said.
As at September 2023, SHG had 3 hospitals in its portfolio comprising 1,121 licensed beds and we expect this to increase to 1,300 beds by end-2024F (total bed capacity of 1,714).
Meanwhile, for its property and construction portfolio, CGS-CIMB said Sunway continues to expand its footprint in Johor, is expecting more launches after Southern Economic Zone (SEZ) zoning.
The group has embarked on a JV project with Equalbase, a Singapore developer and asset manager, to build an integrated warehouse
with multi-tenant facility for the logistics industry on 135 acres of its 1,770 acres of land bank in the state.
Sunway estimates gross development value (GDV) is RM8 billion over a 10-year period.
“The business model is built-own-operate and the JV may consider a disposal to a REIT to recycle capital. While contribution from Johor was 10 to 15% of total FY23 presales and 2 launches in Johor are slated for FY24F, we think Sunway will conserve land bank until there is further clarity on the zoning of SEZ.
“We do no discount enquiries from data centre operators, which is synergistic to its construction business. Group-wise, we do not expect presales growth to be meaningful in FY24F compared to FY23 of RM2.3 billion.
“However, this should accelerate once it launches its executive condo project in Tengah, Singapore with an estimated GDV RM2.5 billon. We expect strong take-up for this given the precedence set by previous launches,” the research house said.
The key downside risks of GGS-CIMB call is a slowing economy, which will impact most of its divisions, and rising raw material costs while its key re-rating catalysts are strong property sales, more construction new wins and faster IPO of its healthcare unit.
