Investment Highlights

• We maintain BUY recommendation on Sunway while finetuning our fair value (FV) to RM2.19/share (from RM2.20/share previously). Our SOP is lowered by 1% due to the removal of completed projects in Brookvale, Sembawang and Tampines which was mostly offset by the acquisition of Flynn Park in Singapore. Our FV also reflects a 3% premium from our 4-star ESG rating (Exhibits 3 & 4).

• A Sunway joint venture won a bid to acquire a 4.8-acre freehold private condominium named Flynn Park, which was first developed in 1986 in Yew Siang Road, Pasir Panjang, Singapore for S$371mil (RM1.1bil).

• The joint venture comprises Hoi Hup Realty Pte Ltd (70%) and Sunway Developments Pte Ltd (30%) while the proposed deal carries an indicative gross development value (GDV) of S$750mil (RM2.3bil).

• The acquisition price translates to a fair S$1,355 psf based on a plot ratio of 1.4 and implies a reasonable cost-to-GDV ratio of 49%. As a comparison, Sunway previously acquired leasehold residentials in Canberra Link, Sembawang and Tampines Avenue 10, Singapore back in 2018 and 2019 with a higher cost-to-GDV ratio of 54%. Thus, we think the potential profit margin is acceptable with our channel checks indicating Pasir Panjang land is being offered at S$1,048 psf to S$3,000 psf currently.

• Sunway plans to redevelop the site into a modern private residential condominium, leveraging the strategic location with attractive amenities nearby which include the Pasir Panjang MRT station, a food centre, the Kent Ridge nature park, Mapletree Business City and VivoCity within walking distance. It is also well connected to Sentosa Island which requires a drive of just 20 minutes.

• We are positive on this latest acquisition which will further enhance the earnings visibility of Sunway’s property developments in Singapore. Following the deal, Singaporebased projects now consist of 47% of the group’s remaining GDV for international projects, which account for 9% of the group’s total development value of RM54bil.

• However, we maintain our forecasts for now pending its target launch in 2023 while the timeline of the deal completion is uncertain at this stage. Meanwhile, we estimate the FY21F net gearing would be slightly increased from 47% to 50%.

• We believe the long-term outlook for Sunway remains positive premised on its: (i) strong unbilled sales of RM3.6bil (6x FY21F property development revenue) and (ii) a robust outstanding order book of RM4.8bil (2.8x FY21F construction revenue); and (iii) expansion plan for its healthcare business which could increase bed capacity by 82% in FY23F.

Source: AmInvest Research - 14 Sept 2021