Investment highlights

• We maintain our BUY call on Sunway Bhd (Sunway) with a revised fair value of RM2.03 per share (from RM1.99) based on SOP valuations (Exhibit 3). We keep our FY19 earnings forecast unchanged while increasing FY20 and FY21 earnings by 2.2% respectively.

• Sunway, via its 100% subsidiary Sunway Residence (Guernsey) Limited (SRG), has proposed to acquire 3 purpose-built student accommodations namely: (i) The Colston, Colston Avenue, Bristol; (ii) Centregate, Colston Avenue, Bristol; and (iii) Redvers House, Union Street, Sheffield in UK. The purchase consideration for the properties are £9.1mil, £9.5mil and £19mil respectively, amounting to a total sum of £37.6mil (RM202.8mil). The acquisition is expected to be completed by 4QFY19.

• Details of the properties: i. The Colston – A 5-storey building providing 77 bed spaces (67 studios and 10 “twodio” bed spaces) and a ground floor commercial unit with a lettable area of 4,089 sq ft. Estimated annual income is £735K. ii. Centregate – A 7-storey building with 85 bed spaces (6 “threedio”, 36 “twodio” and 43 studio bed spaces) and a ground floor commercial unit with lettable area of 708 sq ft. Estimated annual income is £770K. iii. Redvers House – A 14-storey building comprising 227 bed spaces (mainly studio rooms) with a ground floor commercial unit with a lettable area of 6,584 sq ft. Estimated annual income is £1.95mil.

• Based on management guidance, the properties are expected to generate a combined annual gross rental income of £3.5mil (RM18.7mil) and a net income of £2.6mil (RM14mil) per annum or net yield of close to 7% which will be reflected in FY20 numbers following the completion of the acquisition in 4QFY19.

• We are positive on the acquisition as it will help improve Sunway’s investment property earnings over the long term. We keep our FY19 earnings forecast unchanged while increasing FY20 and FY21 earnings by 2.2% respectively. We revised our SOP valuation upwards from RM1.99 per share to RM2.03 per share (Exhibit 3). Maintain BUY.

Source: AmInvest Research - 1 Nov 2019