Sunway- a good long-term investment

Background

Sunway Holdings Bhd ('Sunway') is involved in the followings businesses:

• constructing building and civil works and providing mechanical, electrical and piling works.
  
• trading and manufacturing construction and industrial products, building materials, etc.
  
• quarrying, manufacturing and supplying premix, manufacturing ready-mixed concrete and producing building stones.
  
• developing housing and commercial properties, leasing, managing, tenanting, licensing and disposing properties.

Recent Financial results

Note: Sunway has recently changed its financial year end from June 30 to December 31. This means that comparison with previous year's quarterly results may be misleading. My comment below must be read with this proviso in mind.

Sunway has just announced its results for QE30/6/2010. Its net profit increased by 22% q-o-q or 164% y-o-y to RM48.6 million while turnover increased by 1.5% q-o-q or 35% y-o-y to RM509 million. From Chart 1 below, we can see that Sunway's bottom-line has been steadily for the last 4 quarters.


Table: Sunway's last 8 quarterly results


Chart 1: Sunway's last 12 quarterly results

Valuation

Sunway (closed at RM1.57 today) is now trading at a PER of 6.9 times (based on last 4 quarters' EPS of 22.82 sen). Assuming a PER of 10 times, Sunway's fair value could be about RM2.28.

Technical Outlook

From Chart 2 below, we can see that Sunway is in an uptrend. The uptrend line support is at RM1.40. However, if we looked at Chart 3, which is the monthly chart plotted on a logarithmic scale, we can see that Sunway is trapped within a rising or bearish wedge, with upside breakout at RM1.80 & downside breakout at RM1.40. If it can break above the RM1.80 level, Sunway may rise to the resistance posed by the line connecting the two most recent 'high' (denoted as 'RR') at RM2.40.


Chart 2: Sunway's daily chart as at Aug 25, 2010_9.20am (Source: Quickcharts)



Chart 3: Sunway's monthly chart as at Aug 2, 2010, plotted on log scale (Source: Tradesignum)

Conclusion

Based on steadily improving financial performance & attractive valuation, Sunway could be a good long-term investment.