• We maintain our BUY call on Sunway Bhd (Sunway) with an unchanged fair value of RM1.99 per share based on SOP valuations (Exhibit 1). We made no changes to our FY19–21 earnings forecasts.
• Sunway, via its wholly-owned subsidiary Sunway City SB, has proposed to acquire the entire equity interest of Sterling Paradise SB for RM15mil. Sterling Paradise SB had previously signed an S&P agreement with Meraki Land SB to acquire 47 parcels of freehold land which come with an approved development order measuring approximately 11.8 acres in Mutiara Bukit Jalil.

• Sunway is planning a mixed development (residential 7.5 acres and commercial 4.3 acres), targeting the upper-middle income group. The project has a GDV of about RM800mil, is expected to commence in 2HFY20 and will be developed over a span of 6 years.

• The purchase consideration of the land is: (i) 15% of the GDV of the future development less a fixed sum of RM36.7mil; and (ii) 25% of the PBT above RM145mil from any development undertaken on the land.

• Based on our estimate, the land cost is calculated at RM98.3mil (RM191psf) which includes the acquisition of Sterling Paradise SB of RM15mil while excluding the 25% of PBT sharing and fixed sum of RM36.7mil. The cost-to-GDV ratio of 12.3% is considered low as compared with the average of 15% for high-rise mixed residential/commercial developments in Klang Valley.

• There are not many identical transactions within the area recently. However, the asking price of freehold residential land surrounding its neighbourhoods with areas larger than 1 acre ranges from RM95psf to RM850psf (Old Klang Road @ RM550-RM850psf, Sri Petaling @ RM150-RM220 psf and Puchong @ RM260-RM350psf).

• The land is located in the mature neighbourhood of Bandar Kinrara, Bukit Jalil and OUG which have amenities such as IOI Mall, SJK (C) Lai Meng, Kinrara Golf Club and the upcoming Pavilion Bukit Jalil City. The land is accessible via major highways such as the KESAS, MEX and Bukit Jalil Highway. In terms of public transportation, the land is 600m from the Muhibbah LRT station and 900m from the Alam Sutera LRT station.

• 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 recommendation with an unchanged fair value of RM1.99.

Source: AmInvest Research - 23 Sept 2019