HLIB Research PP 9484/12/2012 (031413)

Sunway (BUY, EPS ) INDUSTRY: OVERWEIGHT EARNINGS EVALUATION 2Q results: Decent rebound Results 1HFY12 core earnings grew by 7% to RM141.9m (10.98 sen/share) making up 42% ours and streets estimates respectively. Deviations Dividends Highlights Risks Forecasts Rating Valuation We consider earnings to be largely in line as we are expecting stronger sequential earnings growth. None. Quarterly results QoQ, revenue and core earnings rebounded by 22% and 21% respectively from a seasonally weak 1Q performance as activities picked-up in all major divisions. However, on a YoY basis, core earnings only grew by 1% due to lower associate contribution from the Singapore development projects and absence of overseas construction contribution. 1HFY12 performance For the 6-month period, core earnings growth of 7% was largely derived from 1Q s core earnings as 2Q s YoY growth was affected by the timing in profit recognition for its Singapore development projects. Rebound in property sales During 2Q, Sunway achieved new property sales of RM443m (based on effective stake), a reversal of fortune compared to only RM175m new sales achieved for 1QFY12. ~RM285m sales were from Singapore s launches, mainly SeaEsta (Effective GDV: S$107m) which has achieved a take-up rate of ~80% as of Jul-12. We believe that Sunway s is on track to exceed its full year new sales target of RM800m. The management will also be prudent in new launches that offer the right products at a fair or affordable price range. Among the new launches will be Sunway Velocity s retail and designer suites (Effective GDV: RM120m) and Sunway Geo (Effective GDV: RM180m). Earnings visibility Overall, Sunway s outstanding construction order book stands at ~RM2.9bn (see Figure #3), translating to ~2.4x FY11 s construction revenue, while its unbilled property sales of ~RM1.8bn (see Figure #4) translates to ~2.0x FY11 s property revenue. Execution risk; Regulatory and political risk (both domestic and overseas); Rising raw material prices; and Unexpected downturn in the construction and property cycle. Unchanged. BUY ( ) Positives: (1) Acquiring strategic land bank. (2) Deep values and is still trading at a discount to its peers. (3) Integrated construction/property business model. Negatives: (1) Slower take-up for its property launches. Maintain TP of RM2.93 based on SOP valuation (see Figure #5). HLIB Research PP 9484/12/2012 (031413) 29 August 2012 Price Target: RM2.93 ( ) Share price: RM2.25 Jarod Soon smsoon@hlib.hongleong.com.my (603) 2168 1073 KLCI 1,647.1 Expected share price return 30.2% Expected dividend return 2.3% Expected total return 32.5% Share price Information Bloomberg Ticker SWB MK Bursa Code 5211 Issued Shares (m) 1,293 Market cap (RM m) 2,908 3-mth avg. volume ( 000) 895 Price Performance 1M 3M 12M Absolute -0.9-1.7 0.0 Relative -2.2-6.6-12.1 Major shareholders Tan Sri Jeffrey 45.0% GIC 12.5% Free Float 51.7% Summary Earnings Table FYE Dec (RM m) 2011A 2012E 2013E 2014E Revenue 3,692 3,478 3,774 4,226 EBITDA 456 462 505 581 EBIT 366 342 368 428 Profit Before Tax 499 432 463 532 PATAMI 372 337 361 416 Core PATAMI 328 337 361 416 Core EPS (sen) 25.4 26.1 27.9 32.2 FD EPS (sen) 21.1 21.7 23.3 26.9 Net DPS (sen) - 5.2 5.6 6.4 Net DY (%) - 2.3 2.5 2.9 P/E (x) 8.9 8.6 8.1 7.0 FD P/E (x) 10.6 10.4 9.7 8.4 P/B (x) 1.0 0.9 0.8 0.7 Net Gearing (%) 45.4 35.9 32.7 29.9 ROE (%) 10.1 10.7 10.4 11.0 ROA (%) 4.4 4.3 4.7 5.3 HLIB Page 1 of 7 29 August 2012

Figure #1 Quarterly results comparison FYE Dec (RM m) 1Q11 1Q12 2Q12 QoQ (%) YoY (%) Comments Revenue 1,002.6 814.8 996.1 22-1 Refer to segmental. Property Development 236.6 160.1 188.6 18-20 YoY: Affected by slower property sales. QoQ: Higher billings from Sunway Nexis, Velocity and South Quay. Property Investment 117.2 130.5 143.7 10 23 YoY: Higher contribution from Monash U Residence and Sunway Putra Hotel. QoQ: Due to higher theme park visitorship and hotel occupancy rate. Construction 386.6 259.0 388.3 50 0 YoY: Construction activities remained unchanged. QoQ: Pick-up in construction activities, especially in the Southern region. Trading/Manufacturing 140.2 147.7 145.0-2 3 YoY/QoQ: Held steady despite challenging economic conditions. Quarry 47.6 37.4 48.5 30 2 EBIT 57.8 60.4 104.2 73 80 Refer to segmental. Property Development 9.3 18.1 27.8 53 >100 YoY/QoQ: Affected by fluctuations in earnings margin. Property Investment 26.8 21.2 37.5 77 40 YoY/QoQ: Due to higher property investment revenue. Construction 10.4 7.4 17.6 >100 69 YoY/QoQ: Affected by fluctuations in earnings margin. Trading/Manufacturing 12.8 12.4 12.7 3-1 YoY/QoQ: Affected by fluctuations in earnings margin. Quarry 3.5 0.9 2.9 >100-17 YoY: Lower contribution from overseas operation in Trinidad & Tobago and higher operating losses in Vietnam. QoQ: Due to higher quarry revenue. Net Interest Expense (6.8) (18.6) (22.8) 22 >100 Net gearing ratio climbed to 54% from 52% in 1QFY12. Share of Associates/JCE 95.7 42.9 111.6 >100 17 QoQ: Due to fair value gain of RM85m on Sunway REIT. Lower contribution from Singapore property developments due to timing difference in profit recognition. PBT 147.0 84.9 193.1 >100 31 PATAMI 108.4 64.4 154.3 >100 42 EI (31.5) (0.2) (76.7) >100 >100 Derivative gain of RM0.2m and fair value gain of RM76.5m on Sunway REIT. Core Earnings 76.9 64.2 77.7 21 1 QoQ: Rebound in earnings due to pick-up in activities. Core EPS (sen) 5.95 4.97 6.01 21 1 EBIT Margin (%) 5.8% 7.4% 10.5% 41 81 Refer to segmental. YoY: Remained flattish due to lower contribution from Singapore property developments and contribution from overseas construction project. Property Development 3.9% 11.3% 14.7% 30 >100 YoY/QoQ: Higher value-added property development activities carried out. Property Investment 22.9% 16.2% 26.1% 61 14 YoY/QoQ: Achieved better degree of operating leverage due to higher revenue. Construction 2.7% 2.8% 4.5% 60 69 YoY/QoQ: Higher value-added construction works recognised. Trading/Manufacturing 9.1% 8.4% 8.7% 4-4 Remained fairly stable. Quarry 7.3% 2.5% 5.9% >100-19 PBT Margin Ex-Assoc (%) 5.1% 5.2% 8.2% 59 60 Figure #2 Cumulative results comparison FYE Dec (RM m) 1HFY11 1HFY12 YoY (%) Comments Revenue 1,836.3 1,810.9-1 Refer to segmental. Property Development 439.7 348.7-21 Affected by slower property sales. Property Investment 226.2 274.2 21 Higher contribution due to Monash U Residence and Sunway Putra Hotel. Construction 663.6 647.3-2 Construction activities remained unchanged. Trading/Manufacturing 273.3 292.7 7 Held steady despite challenging economic conditions. Quarry 88.4 85.9-3 EBIT 101.2 164.6 63 Refer to segmental. Property Development 33.2 45.9 38 Affected by fluctuations in earnings margin. Page 2 of 7 29 August 2012

Property Investment 42.9 58.7 37 Due to higher property investment revenue. Construction 11.9 25.0 >100 Affected by fluctuations in earnings margin. Trading/Manufacturing 25.2 25.0-1 Affected by fluctuations in earnings margin. Quarry 3.8 3.8 1 Slightly better due to lower forex loss incurred from its Vietnam operations. Net Interest Expense (19.5) (41.4) >100 Net gearing ratio climbed to 54% from 46% in 1HFY11. Share of Associates/JCE 141.0 154.4 10 Mainly due to fair value gain of RM85m on Sunway REIT. PBT 226.2 278.0 23 PATAMI 176.7 218.8 24 Lower contribution from Singapore property developments due to timing difference in profit recognition and contribution from overseas construction project. EI (44.4) (76.9) 73 Derivative gain of RM0.4m and fair value gain of RM76.5m on Sunway REIT. Core Earnings 132.3 141.9 7 Earnings growth lifted by 1QFY12 s performance. Core EPS (sen) 10.24 10.98 7 EBIT Margin (%) 5.5% 9.1% 65 Refer to segmental. Property Development 7.6% 13.2% 74 Higher value-added property development activities carried out. Property Investment 18.9% 21.4% 13 Achieved better degree of operating leverage due to higher revenue. Construction 1.8% 3.9% >100 Higher value-added construction works recognised. Trading/Manufacturing 9.2% 8.5% -7 Remained fairly stable. Quarry 4.3% 4.4% 3 PBT Margin Ex-Assoc (%) 4.6% 6.8% 47 Figure #3 Construction order book as of 2QFY12 Projects Balance works (RM m) MRT Package V4 (Sec. 16-Semantan portal) 1,170 LRT KJ line extension Package B 541 Pinewood Iskandar 293 Legoland 27 UiTM campus expansion 146 Precinct 1, Putrajaya (Hotel & Office) 51 Bio-Xcell CUF, Nusajaya 24 Others 267 Total Malaysia 2,519 Singapore precast 364 Total Overseas 364 Total Order book 2,883 *Excluded Velocity and Pinnacle order worth RM694m as we consider it as internal orders. Page 3 of 7 29 August 2012

Figure #4 Effective unbilled property sales as of 2QFY12 Developments (RM m) Singapore 989 Sunway Damansara 197 Sunway South Quay 154 Velocity 134 China 65 Melawati 157 Suria 45 SPK 18 Penang 22 Others 63 Total 1,844 Figure #5 Sunway SOP valuation Division Methodology Stake Value (RM m) RM/share % Construction 14X Average of FY12-13 Earnings 100% 506 0.33 11 Property NPV of profits + BV of Property 100% 3,919 2.53 86 Trading/Manufacturing 9X P/E 100% 353 0.23 8 Quarry 9X P/E 100% 65 0.04 1 Sub-Total (RM m) 4,843 No. of shares (m) 1,293 RM per share 3.75 Proceeds from warrants (RM m) 724 0.47 16 Holding Company Net Debt (1,021) (0.66) (22) SOP (RM m) 4,546 100 Total no. of diluted shares (m) 1,551 Target Price (RM) 2.93 Figure #6 HLIB vs Consensus FYE Dec (RM m) FY12E FY13E FY14E HLIB Consensus (%) HLIB Consensus (%) HLIB Consensus (%) Revenue 3,478.4 3,684.3-6% 3,774.0 4,153.9-9% 4,225.9 4,329.7-2% PATAMI 337.2 339.3-1% 361.0 377.0-4% 416.5 421.3-1% Bloomberg, HLIB Page 4 of 7 29 August 2012

Figure #7 Company Peer comparison Mkt Cap Price Target (RM m) (RM) (RM) +/- (%) Rating EPS (sen) P/E (X) ROE (%) DY (%) FY12E FY13E FY12E FY13E FY12E FY13E Gamuda* 7,238 3.48 4.41 26.7 BUY 24.4 28.4 14.2 12.2 13.2 14.2 3.2 IJM** 7,157 5.18 5.48 5.8 HOLD 36.9 41.9 14.0 12.4 9.1 9.7 2.3 Sunway 2,908 2.25 2.93 30.2 BUY 26.1 27.9 8.6 8.1 10.7 10.4 2.3 MRCB 2,316 1.67 2.29 37.1 BUY 5.0 11.7 33.4 14.3 5.0 11.0 0.9 WCT 2,191 2.67 3.36 25.8 BUY 22.7 25.4 11.8 10.5 12.0 12.3 2.8 Mudajaya 1,500 2.73 4.27 56.4 BUY 36.4 50.3 7.5 5.4 19.3 22.4 2.7 Eversendai 1,161 1.50 2.00 33.3 BUY 16.4 17.0 9.2 8.8 16.3 14.8 2.2 HSL 956 1.64 2.21 34.8 BUY 17.7 19.1 9.2 8.6 22.0 19.8 1.9 Benalec 923 1.15 - - NR 12.7 19.5 9.1 5.9 20.1 20.5 3.0 Naim 468 1.87 - - NR 30.8 36.8 6.1 5.1 7.4 8.2 5.7 Muhibbah 386 0.95 - - NR 17.7 20.3 5.3 4.7 5.4 6.0 6.1 Kimlun 334 1.39 2.04 46.8 BUY 18.8 22.0 7.4 6.3 18.6 18.2 3.7 TRC Synergy 300 0.63 0.80 27.0 BUY 5.7 7.4 11.1 8.5 8.3 10.1 2.4 Ahmad Zaki 194 0.70 - - NR 8.4 9.0 8.3 7.8 11.3 11.2 3.6 Bina Puri 104 0.84 - - NR 12.0 20.0 7.0 4.2 4.8 9.2 2.4 Average 10.8 8.2 HLIB, Bloomberg *FYE Jul **FYE Mar Page 5 of 7 29 August 2012

Financial Projections for Sunway (TP: RM2.93) Income Statement Quarterly Financial Summary FYE 31 Dec (RM m) 2010A 2011A 2012E 2013E 2014E FYE 31 Dec (RM m) 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 Revenue 3,102.1 3,691.7 3,478.4 3,774.0 4,225.9 Revenue 1,002.6 934.0 968.6 814.8 996.1 EBITDA 670.2 456.0 461.9 504.9 580.8 Expenses (967.1) (897.9) (867.6) (770.5) (917.8) D&A (79.7) (89.7) (119.7) (136.8) (152.3) Other Income 22.3 28.0 104.8 16.1 25.9 EBIT 590.5 366.3 342.2 368.0 428.5 EBIT 57.8 64.2 205.8 60.4 104.2 Interest Income 27.3 27.5 24.4 15.8 8.7 Net Interest Expense (6.8) (18.2) (17.8) (18.6) (22.8) Finance Costs (101.1) (80.9) (93.7) (73.5) (63.0) Associates & JCE 95.7 56.7 1.6 42.9 111.6 Associates/JCE 199.3 185.6 158.9 152.8 157.9 Profit Before Tax 147.0 90.7 190.1 84.9 193.1 Profit Before Tax 715.9 498.5 431.8 463.2 532.1 Tax (30.7) (18.7) (59.1) (18.5) (30.3) Tax 277.7 (86.1) (68.3) (77.4) (92.7) Net Profit 116.3 72.0 131.0 66.4 162.8 Net Profit 993.7 412.4 363.6 385.8 439.4 Minority Interests (7.9) (2.8) (7.2) (2.0) (8.5) Minority Interests (309.2) (40.4) (26.4) (24.7) (22.9) PATAMI 108.4 69.2 123.8 64.4 154.3 PATAMI 684.4 372.1 337.2 361.0 416.5 Exceptionals (31.5) 24.8 (24.5) (0.2) (76.7) Exceptionals 392.4 44.1 - - - Core Earnings 76.9 94.0 99.3 64.2 77.7 Core Earnings 292.0 328.0 337.2 361.0 416.5 W. Ave. Shares (m) 1,292.5 1,292.5 1,292.5 1,292.5 1,292.5 Basic Shares (m) 1,292.5 1,292.5 1,292.5 1,292.5 1,292.5 Core EPS (sen) 5.95 7.27 7.68 4.97 6.01 Core EPS (sen) 22.6 25.4 26.1 27.9 32.2 FD Core EPS (sen) 4.96 7.27 7.68 4.97 6.01 FD Core EPS (sen) 18.8 21.1 21.7 23.3 26.9 Balance Sheet Rates and Ratios FYE 31 Dec (RM m) 2010A 2011A 2012E 2013E 2014E FYE 31 Dec (RM m) 2010A 2011A 2012E 2013E 2014E Cash 868.5 776.7 847.2 205.1 374.3 Core PER (x) 10.0 8.9 8.6 8.1 7.0 Trade Receivables 741.5 789.4 571.8 620.4 694.7 FD Core PER (x) 11.9 10.6 10.4 9.7 8.4 Inventories 301.5 451.8 285.9 310.2 347.3 Net DPS (sen) - - 5.2 5.6 6.4 Development Costs 621.3 669.3 626.3 707.1 860.5 Net DY (%) - - 2.3 2.5 2.9 Associates/JCE 1,241.8 1,281.2 1,366.7 1,444.2 1,507.0 BVPS (RM) 2.7 2.3 2.6 2.8 3.1 PPE 2,197.4 2,875.6 3,054.9 3,217.2 3,364.2 P/B (x) 0.8 1.0 0.9 0.8 0.7 Goodwill 329.2 326.5 326.5 326.5 326.5 NTA/Share (RM) 2.5 2.1 2.3 2.5 2.8 Others 679.2 673.1 673.1 673.1 673.1 Total Assets 6,980.5 7,843.6 7,752.4 7,503.8 8,147.6 EBITDA Margin (%) 21.6 12.4 13.3 13.4 13.7 Trade Payables 826.2 1,039.5 857.7 930.6 1,042.0 EBIT Margin (%) 19.0 9.9 9.8 9.8 10.1 Total Debt 1,405.8 2,253.7 1,980.7 1,340.8 1,506.1 PBT Margin (%) 29.5 18.5 17.0 16.3 16.3 Others 849.9 1,238.6 1,238.6 1,238.6 1,238.6 PATAMI Margin (%) 9.4 8.9 9.7 9.6 9.9 Total Liabilities 3,081.9 4,531.8 4,077.0 3,510.1 3,786.7 ROE (%) 8.3 10.1 10.7 10.4 11.0 Shareholders' Funds 3,517.9 2,985.4 3,322.6 3,616.2 3,960.4 ROA (%) 4.2 4.4 4.3 4.7 5.3 Minority Interests 380.7 326.4 352.8 377.5 400.4 Total Capital 3,898.6 3,311.8 3,675.4 3,993.7 4,360.9 Net Gearing (%) 15.3 45.4 35.9 32.7 29.9 Cashflow Analysis Assumption Metrics FYE 31 Dec (RM m) 2010A 2011A 2012E 2013E 2014E FYE 31 Dec (RM m) 2010A 2011A 2012E 2013E 2014E EBITDA 670.2 456.0 461.9 504.9 580.8 Revenue 3,102 3,692 3,478 3,774 4,226 Working Capital 492.0 (52.9) 244.8 (80.8) (153.4) Property 623 916 762 860 1,047 Interest Received 27.3 27.5 24.4 15.8 8.7 Property Investment 547 518 533 549 566 Dividends fr Assoc 70.7 153.9 73.4 75.4 95.2 Construction 1,005 1,221 1,112 1,255 1,463 Others (792.6) (186.5) (68.3) (77.4) (92.7) Trading/Manufacture 482 553 581 610 640 CFO 467.4 398.0 736.2 437.8 438.5 Quarry 179 184 194 203 214 Capex (121.4) (142.2) (300.0) (300.0) (300.0) 267 300 296 296 296 Purchase/Disposal 3,322.4 (71.2) - - - Others (1,203.9) (79.6) - - - EBIT Margins (%) 19.0 9.9 9.8 9.8 10.1 CFI 1,997.0 (293.0) (300.0) (300.0) (300.0) Financing 46.9 847.9 (273.0) (639.8) 165.2 Shares Issued (128.0) (42.5) - - - Dividends (1,958.3) (944.2) - (67.4) (72.2) Interest Paid (101.1) (80.9) (93.7) (73.5) (63.0) Others (92.7) 23.5 - - - CFF (2,233.2) (196.3) (366.7) (780.7) 30.0 Net Cashflow 231.3 (91.2) 69.5 (642.9) 168.5 Page 6 of 7 29 August 2012

Disclaimer The information contained in this report is based on data obtained from sources believed to be reliable. However, the data and/or sources have not been independently verified and as such, no representation, express or implied, is made as to the accuracy, adequacy, completeness or reliability of the info or opinions in the report. Accordingly, neither Hong Leong Investment Bank Berhad nor any of its related companies and associates nor person connected to it accept any liability whatsoever for any direct, indirect or consequential losses (including loss of profits) or damages that may arise from the use or reliance on the info or opinions in this publication. Any information, opinions or recommendations contained herein are subject to change at any time without prior notice. Hong Leong Investment Bank Berhad has no obligation to update its opinion or the information in this report. 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As of 29 August 2012, the analyst, Jarod Soon Sien Ming, who prepared this report, has interest in the following securities covered in this report: (a) -. Published & Printed by Hong Leong Investment Bank Berhad (43526-P) Level 8, Menara HLA No. 3, Jalan Kia Peng 50450 Kuala Lumpur Tel 603 2168 1168 / 603 2710 1168 Fax 603 2161 3880 Equity rating definitions BUY Positive recommendation of stock under coverage. Expected absolute return of more than +10% over 12-months, with low risk of sustained downside. TRADING BUY Positive recommendation of stock not under coverage. Expected absolute return of more than +10% over 6-months. Situational or arbitrage trading opportunity. HOLD Neutral recommendation of stock under coverage. Expected absolute return between -10% and +10% over 12-months, with low risk of sustained downside. TRADING SELL Negative recommendation of stock not under coverage. Expected absolute return of less than -10% over 6-months. Situational or arbitrage trading opportunity. SELL Negative recommendation of stock under coverage. High risk of negative absolute return of more than -10% over 12-months. NOT RATED No research coverage and report is intended purely for informational purposes. Industry rating definitions OVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% over 12-months. NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return between 5% and +5% over 12-months. UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than 5% over 12-months. Page 7 of 7 29 August 2012