Investment highlights

• We maintain our BUY call on Sunway Bhd (Sunway) with an unchanged fair value of RM1.94 per share based on SOP valuations (Exhibit 1). We made no changes to our FY19-21 earnings forecasts.

• Sunway has proposed to acquire 784 acres of leasehold land in Ulu Langat, Selangor together with a quarry plant and machinery from Dolomite Corporation Bhd for RM125mil.

• The acquisition price of RM125mil is derived based on a RM2mil premium over the aggregate market value of the land, plant and machinery based on a preliminary valuation of RM123mil.

• The land’s lease, which is expiring on 8 June 2019, will be extended by 60 years upon the issuance of a new lease title. Management expects the deal to be completed in 3QFY19.

• The proposed acquisition will improve both the market share and financial performance of Sunway’s quarry division with an expanded market coverage as it will penetrate into new markets. The increased coverage will result in greater cost efficiency through economies of scale.

• The new acquisition of will add 1 quarry to Sunway. The group’s quarry division comprises 8 quarries and 23 asphalt plants in Peninsular Malaysia. The division contributed 4.1% and 1.3% to the group’s revenue and net profit in FY18 respectively.

• Although we believe the small contribution from the quarry division will not have any significant impact on Sunway’s earnings, it will still contribute positively in the future. Hence, we made no changes to our FY19– 21 earnings forecast until we obtain more information from the management.

Source: AmInvest Research - 4 Jun 2019