Investment Highlights

• We maintain BUY recommendation on Sunway with a higher SOP-based fair value (FV) of RM2.21/share (from RM2.19/share previously). We raise our SOP is by 1% on the acquisition of 22 plots of residential freehold land in Singapore by Sunway’s 30%-owned joint venture (JV). Our FV also reflects a 3% premium from our 4-star ESG rating (Exhibits 3 & 4).

• Sunway Developments Pte Ltd’s (30%) JV with Hoi Hup Realty Pte Ltd (70%) won another bid to acquire a 6-acre freehold residential land located at Thiam Siew Avenue, Tanjong Katong, Singapore for S$815mil (RM2.5bil).

• Based on a plot ratio of 2.8, the acquisition price and further development charge of S$284mil translate to a fair S$1,488 psf vs. our channel checks indicating Tanjong Katong land being offered at S$1,450–S$1,500 psf currently.

• The proposed deal carries an indicative gross development value (GDV) of S$2bil (RM6.1bil), which implies a reasonable land cost-to-GDV ratio of 55%. This translates to a slightly lower potential profit margin compared to Hoi Hup-Sunway JV’s recently acquired freehold residential Flynn Park in Singapore for S$371mil at a cost-to-GDV ratio of 53%.

• Sunway plans to redevelop the site into a luxury private residential condominium, leveraging the popular and mature neighbourhood with attractive amenities nearby which include the Dakota and Paya Lebar MRT stations as well as education institutions within walking distance. It is also well connected to tourism attractions at Marina Bay which is just a 15-minute drive away.

• We are mildly positive on this latest acquisition which will further enhance the earnings visibility of Sunway’s property developments in Singapore. Following the deal, Sunway’s Singapore-based projects now make up 77% of the group’s remaining GDV for international projects, which account for 14% of the group’s total development value of RM60.5bil. Based on the investment cost of S$140mil (RM431mil), the group’s FY21F net gearing level is expected to increase from 47% to 51%.

• We maintain our forecasts for now pending a target launch in the first quarter 2023 with contribution expected to kick in from 2024 onwards.

• 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) expansion plan for its healthcare business which could increase bed capacity by 82% in FY23F.

Source: AmInvest Research - 22 Nov 2021