• We maintain BUY on Sunway with an unchanged SOP-based fair value (FV) of RM2.42/share, pegged to a FY24F PE of 17x, 1 standard deviation above its 3-year median of 12x.

• According to Penang Chief Minister Chow Kon Yeow’s Facebook page, Penang Development Corporation (PDC) has decided to terminate its collaboration agreement with Sunway’s 70%-owned Umech Land for the development of Batu Kawan Industrial Park 2 (BKIP 2).

• The reason given was that PDC was not informed of the change in majority shareholders of Umech Land’s equity structure. Sunway had emerged as a majority shareholder of Umech Land 2 days prior to the announcement of the agreement.

• To date, Umech Land has not received any formal letter of termination of the Joint Development Agreement from PDC.

• Notably, Penang Chinese Chamber of Commerce had also previously questioned the sales of the land at a relatively lower price of RM27 psf vs. an estimated market price of RM80 psf for smaller parcel of lands in surrounding area.

• Upon the termination, PDC will advertise the proposed joint development through a request for proposal. We do not discount the possibility for Sunway to bid for the joint development again.

• BKIP 2 constitutes 6% to Sunway’s remaining gross development value. We will reduce Sunway’s fair value to RM2.40/share from RM2.42/share if the transaction is formally terminated.

• The stock currently trades at a compelling FY24F PE of 14x vs. its 5-year peak of over 20x.

Source: AmInvest Research - 18 Oct 2023