Investment Highlights

• We maintain BUY recommendation on Sunway with a slightly higher SOP-based fair value of RM2.04/share (vs. RM2.03/share previously), which reflects a 3% premium from our 4-star ESG rating (Exhibits 2 & 3).

• Our higher SOP stems from Sunway’s latest land acquisition which will add RM91.3mil to our SOP valuation, incorporating a 40% discount to its RNAV.

• In its second land deal of the year, Sunway will acquire a 6.59-arce parcel of freehold land in Jalan Cochrane, KL from Boustead Properties’ (Boustead) wholly-owned Mutiara Rini Sdn Bhd for RM233.4mil. The payment will be settled within 6 months on 19 October 2021.

• The acquisition price translates to RM813 psf and implies a cost-to-GDV ratio of 20%, within the range of 10%-20% for mixed development in Klang Valley. This seems reasonable as Boustead sold a 2.93-acre parcel of land for RM138mil or RM1,081 psf within the same area in June 2020.

• Sunway plans to develop a transit-oriented mixed development comprising serviced apartments with a retail podium which have an indicative Gross Development Value (GDV) of RM1.15bil. As the project is scheduled for launching by 1H2023 and targeted for completion by 2029, we maintain our FY21F-FY23F net profits.

• We are confident on the saleability of this project given its strategic location, just 10 minutes driving distance to KLCC via Jalan Tun Razak. It is also well connected via major highways such as the Maju Expressway (MEX), the SMART tunnel and the Sungai Besi Expressway (Exhibit 1).

• Moreover, amenities sited within walking distance, including the Cochrane MRT station, popular shopping malls such as Sunway Velocity and MyTown Shopping Centre together with Sunway Medical Centre Velocity, supports the good prospects of the group’s portfolio in Cheras.

• The attractiveness of this development will be further enhanced by the upcoming completion of Tun Razak Exchange (TRX) mall, which is targeted for completion by 3Q2021. The Cochrane MRT station is just one stop away from TRX, which we believe will draw residential and retail demand due to the convergence of convenience and accessibility.

• We believe the outlook for Sunway remains positive premised on its: (i) strong unbilled sales of RM2.4bil; (ii) a robust outstanding order book of RM5.1bil; and (iii) expansion plan in its healthcare business. The stock currently offers a 24% upside from its last traded price.

Source: AmInvest Research - 20 Apr 2021