Sunway Group 2024 Q2 Performance: Diverse Ventures Fuel Robust Growth | Moomoo Research

As a leading enterprise in Malaysia, Sunway Group achieved a revenue of RM 1.58 billion in the second quarter of 2024, marking a year-on-year increase of 7.6%. Pre-tax profit surged by an impressive 68.0% to RM 341 million. The group's diverse operations span real estate, construction, and healthcare, among other sectors, with active expansion on a global scale. Notably, the real estate development, healthcare, and construction segments performed exceptionally well, highlighting the company's foresight in market diversification and strategic planning. Let's take a closer look at the detailed financial report to explore the opportunities and risks.

As a leading enterprise in Malaysia, Sunway Group's business portfolio spans real estate, construction, education, healthcare, and more. Its operations extend across Malaysia, Singapore, China, India, Australia, and other regions. In the realm of Environmental, Social, and Governance (ESG), Sunway is at the forefront, being one of the first companies in Asia to adopt an internal carbon pricing strategy to achieve its emission targets.

Sunway's business composition highlights its robust strength in the construction and real estate sectors. The construction business, accounting for more than half of the revenue, serves as the backbone of the company's income. Property development also makes a solid contribution, comprising about a quarter of the revenue. The trading and manufacturing, and property investment segments each hold significant shares of the revenue, close to one-fifth. Additionally, other businesses and quarries, though smaller in proportion, also provide stable income for the company.

In terms of geographical distribution, Sunway's revenue is primarily concentrated in Malaysia. With Malaysia accounting for 84.13% of the revenue, it underscores the core importance of the domestic market. Although India, Singapore, China, and Indonesia each have smaller individual shares, their combined contribution is notable, reflecting Sunway's active expansion into international markets and diversification of income sources. This geographical spread helps Sunway mitigate risks while capturing growth opportunities in various markets.

Sunway Group's financial performance in the second quarter of 2024 reflects its steady growth momentum and significant improvement in profitability. Below is a comprehensive analysis of the financial report:

1. Revenue: Sunway's revenue reached RM 1.58 billion, a year-on-year increase of 7.6%, mainly driven by improved performance in the healthcare, real estate development, and construction sectors. This indicates that the company's expansion and increased market share in multiple business areas have yielded positive results.

2. Operating Expenses: Operating expenses were RM 1.44 billion, up 7.12% year-on-year. The growth rate of expenses was slightly lower than that of revenue, demonstrating the company's good cost control capabilities.

3. Pre-Tax Profit: Pre-tax profit surged to RM 341 million, a year-on-year increase of 68.0%. Net profit rose by 72.1% to RM 296 million, and earnings per share significantly increased to 4.11 sen, up 61.8%. This highlights the strength of the company's profit model and the significant enhancement of its profitability.

1. Real Estate Development: The real estate development segment generated revenue of RM 371.9 million and pre-tax profit of RM 70.1 million, with year-on-year growth of 2.7% and 42.9%, respectively. The growth was mainly due to increased sales from new and existing projects, particularly contributions from a new private condominium project in Singapore.

2. Real Estate Investment: The real estate investment segment performed exceptionally well, with revenue and pre-tax profit increasing by 15.8% and 154.5% year-on-year to RM 231.0 million and RM 86.2 million, respectively. The growth was primarily driven by Sunway REIT's gains from the fair value of newly acquired investment properties, especially the rental contributions from six new supermarkets.

3. Construction: The construction segment saw a slight decline in revenue to RM 381.1 million, but pre-tax profit grew by 17.8% to RM 52.4 million. Despite the revenue drop, higher project profit margins drove profit growth. The construction division secured orders worth RM 35 billion in August 2024, far exceeding expectations, leading the company to revise its order target for 2024 to RM 40 billion to RM 50 billion.

4. Healthcare: The healthcare segment's net profit grew by 30.8% to RM 49.3 million, benefiting from increased revenue from operating hospitals and higher bed occupancy rates, indicating improved service quality and market position in the healthcare sector.

5. Trading and Manufacturing: The trading and manufacturing segment's revenue grew by 12.0% to RM 255.2 million, with pre-tax profit rising slightly by 3.4% to RM 10.5 million, reflecting stable demand for related products in the domestic market.

6. Quarry: The quarry segment's revenue and pre-tax profit increased by 18.5% and 154.4% year-on-year to RM 111.9 million and RM 11.2 million, respectively, driven mainly by increased demand from local councils and road projects.

7. Others: The other segments saw revenue and pre-tax profit grow by 26.9% and 162.8% year-on-year to RM 228.8 million and RM 61.3 million, respectively, mainly due to strong performance in the building materials and community pharmacy businesses.

Sunway Group demonstrated strong growth momentum and profitability across its core business areas in the second quarter of 2024. The company's performance was particularly outstanding in real estate development, real estate investment, healthcare, and construction segments. With the continued growth of the Malaysian economy and the company's deepening development in various business sectors, Sunway's profitability outlook remains optimistic.

1. Cash Flow from Operating Activities: The net cash flow from operating activities for this quarter was RM -177 million, compared to a net inflow of RM 246 million in the same period of 2023. This indicates that the company faced challenges in cash recovery this quarter, primarily due to delays in accounts receivable collections.

2. Cash Flow from Investing Activities: The cash flow from investing activities was RM 752 million, a significant increase from RM 278 million in the same period of 2023. This reflects the company's notable success in asset sales or investment returns, thereby enhancing its cash flow situation.

3. Cash Flow from Financing Activities: The cash flow from financing activities was RM 80 million, down from RM 225 million in the same period of 2023. Nevertheless, this still indicates that the company successfully increased its cash reserves through debt or equity financing.

4. Ending Cash and Cash Equivalents Balance: As of the end of the June 2024 quarter, Sunway Group's cash and cash equivalents balance was RM 2.884 billion. Despite some operating cash flow pressures, the company successfully bolstered its cash reserves through effective investment and financing strategies, maintaining good liquidity and financial stability.

However, the growth in accounts receivable is a matter that investors should be cautious about and monitor closely.

Sunway's current dividend yield is 1.38%, with a dividend distribution frequency of semi-annual payments. As shown in the chart above, the specific dividend distributions over the past five years have gradually returned to pre-2021 levels. Additionally, on August 28, 2024, the company announced an interim dividend of RM 0.02 per share and a 5.25% annual interest rate payment on its irredeemable convertible preference shares, demonstrating its commitment to shareholder interests and confidence in its profitability.

1. Macroeconomy: Malaysia's economy achieved strong growth of 5.9% in the second quarter of 2024, the highest level in the past six quarters. This growth was driven by a positive labor market, increased exports, and investment activities. Bank Negara Malaysia (BNM) expects the economic growth for 2024 to be at the upper end of the 4.0% to 5.0% forecast range, indicating confidence in the economic outlook.

2. Monetary Policy: BNM maintained the Overnight Policy Rate (OPR) at 3.00%, indicating that its monetary policy stance continues to support economic growth.

3. Healthcare Sector: The Group's healthcare division is actively expanding its service capacity to meet the growing demand for high-quality medical services from both domestic and international patients. The expansion projects at Sunway Medical Center Damansara and Ipoh are expected to be operational by the end of 2024 and early 2025, significantly increasing the Group's bed capacity.

4. Real Estate Market: The establishment of the Johor-Singapore Special Economic Zone (JS-SEZ) and improved infrastructure are expected to attract more foreign and domestic investments. Sunway City Iskandar Puteri (SCIP), the Group's flagship project in the southern region, is set to benefit from this. Additionally, the Group's planned launch of freehold residential projects may further enhance its competitiveness in the real estate market.

5. Construction Sector Performance Analysis: The Group's real estate development division has achieved positive results in the Singapore market, completing the delivery of the Parc Central Residences project, and plans to complete more private condominium projects in the second half of the year. The construction division secured new orders worth RM 3.46 billion in the first half of 2024, exceeding its order replenishment target, and has revised its full-year target to RM 4.0 billion to RM 5.0 billion, demonstrating strong market demand and the company's leading position in the construction industry.

Considering Malaysia's robust economic growth, relatively stable monetary policy, positive outlook for the healthcare and real estate markets, and Sunway's strong performance in real estate development, Sunway's profitability prospects appear promising. However, close attention should still be paid to the company's cash flow situation.