Investment highlights

• We maintain our BUY call on Sunway Bhd (Sunway) and kept our fair value relatively unchanged at RM1.95 (Exhibit 3). We made no changes to our FY19–21 earnings forecasts.

• Sunway, via its 60:40 JV Sunway PKNS, entered into a privatisation agreement with Perbadanan Kemajuan Negeri Selangor (PKNS) to accept the rights to develop a leasehold land measuring approximately 9.458 acres at Kota Damansara, Selangor Darul Ehsan (Exhibit 1).

• In consideration of PKNS granting the development rights to the land to Sunway PKNS, Sunway PKNS shall pay a rights value of RM36.6mil; revenue share of RM50mil; and PBT sharing from the proposed development estimated at RM38mil to PKNS.

• Sunway will develop 825 units of serviced apartments with some lifestyle retail units on the land with an estimated GDV of approximately RM544mil. The development is targeted towards the medium segment with indicative price ranging from RM650psf to RM700psf and unit size ranges from 800 sq ft. to 1,000 sq ft. The project is targeted for completion by year 2025.

• Excluding PBT sharing of RM38mil, the land cost is RM86.6mil (RM210psf). The implying cost to GDV ratio of 15.9% is within the range of 10%–20% for high-rise residential developments in Klang Valley. While there are not many identical transactions within the area recently; the asking price for residential land surrounding its neighbourhood with land area larger than 10,000 sq ft. ranges from RM150psf to RM330psf.

• The land is located in the matured neighbourhood of Kota Damansara which has retail amenities in Sunway Giza, Sunway Nexis and IKEA Damansara, education institutions like Sri KDU and SEGi University and healthcare provider, Thomson Hospital (Exhibit 2). The land is accessible via major highways such as the NKVE, LDP and the upcoming DASH highway. In terms of public transportation, the land is about 3km from the Kota Damansara and Persiaran Surian MRT stations.

• We are positive on the latest development as it will help sustain Sunway’s property earnings over the medium term. However, we made no changes to our FY19–21 earnings forecasts as the project is still in the planning stage. Maintain BUY.

Source: AmInvest Research - 2 Jul 2019