Investment Highlights

• We maintain BUY on Sunway with a higher SOP-based fair value (FV) of RM2.40/share (from RM2.39/share previously) after taking into account the contribution from newly acquired land in Kuang, Rawang. Our FV also reflects a 3% premium for our 4-star ESG rating (Exhibits 5 & 6).
• The FV implies an FY24F PE of 16x, 1 standard deviation above its 3-year median of 12x.

• Sunway Rawang City (SRC) entered into a sale and purchase agreement (SPA) with Kauthar Equities to acquire a 245-acre freehold agricultural land at Kuang, Rawang for RM115mil. SRC is the joint venture between Sunway’s wholly-owned Sunway City (70%) and Amal Resources (30%) (Exhibit 1).

• The proposed acquisition is expected to be completed in 1QFY24. Upon completion of the acquisition, Sunway’s accumulated landbank will expand by 8% to 3,313 acres from 3,068 acres (Exhibit 3).

• The acquisition will be funded by a combination of borrowings (70%) and cash (30%). Post-acquisition, we expect the group’s FY24F net gearing ratio to inch up to 0.54x from 0.53x.

• Hence, we lower FY24F–25F core net profits by 0.4% to factor in increased finance cost resulting from higher borrowings arising from the acquisition.

• Sunway plans to develop an industrial technology park comprising factories, warehouses and commercial components with an indicative gross development value (GDV) of at least RM2bil.

• Sunway is targeting the light and medium industry segments within the industrial technology park, focusing on manufacturing and logistic sectors.

• For reference, the sales performance of the industrial properties launched in Elmina Business Park (6.9km from Kuang land) was commendable, with almost all of the industrial properties launched in FY21 and FY22 fully sold. Additionally, Elmina Business Park achieved an impressive 97% take-up rate during the launch of The Prestige Collection (consisting of detached and semidetached factories) in June 2023. Given the strong demand in Elmina Business Park, we anticipate that it may spill over to Sunway's Kuang land in the future.

• Prior to finalising the development plan, we expect that the industrial park will comprise mainly of ready-built semi-D factories, similar to the industrial parks in surrounding areas.

• The project is scheduled to debut in FY26F and be developed over a span of 10 years. We estimate a negligible FY26FFY27F contribution with a gradual increase to 4% of Sunway’s earnings by FY28F.

• Valuation-wise, we deem the acquisition price of RM11 psf as attractive after comparing to recent agricultural land acquisitions in the surrounding areas, which were priced within the range of RM16 psf to RM17 psf (Exhibit 4).

• Nevertheless, we anticipate that Sunway will incur a conversion premium of 20%-25% to convert the agricultural land for industrial use.

• The land is strategically located adjacent to the KL-Kuala Selangor Expressway, providing excellent connectivity. It is conveniently situated just a 35-minute drive from Kuala Lumpur City Centre, as well as within an hour’s reach from both Kuala Lumpur International Airport and Port Klang.

• The proposed industrial technology park’s strategic location should be an ideal site to complement the growing industrial areas in the Kuang and Rawang regions, including the Kuang Industrial Area and Rawang Industrial Park (Exhibit 2).

• Given its fair acquisition price and the strategic location, we are positive on the acquisition which is envisaged to help sustain Sunway’s property earnings over the longer term.

• The stock currently trades at a compelling FY24F PE of 12x vs its 5-year peak of over 20x.

Source: AmInvest Research - 4 Aug 2023