Investment Highlights

• We maintain BUY on Sunway with an unchanged SOP-based fair value (FV) of RM2.40/share, which implies FY24F PE of 17x, 1 standard deviation above its 3-year median of 12x. Our FV also reflects a 3% premium for our 4-star ESG rating (Exhibits 4 & 5).

• Sunway’s wholly-owned Sunway Developments (SDPL) together with Hoi Hup Realty have jointly won a tender for the development of an executive condominium (EC) at Tengah Plantation Close (Tengah land) in Singapore.

• This site, awarded by the Housing and Development Board of Singapore, is valued at S$348.5mil (RM1.2bil). It is a 99-year leasehold plot of land spanning 4 acres located within walking distance of the upcoming Tengah Park MRT station on the Jurong Regional Line (Exhibits 1, 2).

• We maintain our forecast for now pending the disclosure of payment arrangement details and project specifics.

• The project is scheduled to debut in early FY25 and to be developed over a span of 4 years. Given that the revenue from EC development will be recognised only upon project completion, we estimate negligible contribution in FY25FFY27F with a lumpy associate earnings recognition in FY28F, contributing to 6% of Sunway’s earnings.

• Hoi Hup Realty and SDPL will incorporate a joint venture (JV) to undertake the EC development of the Tengah land. Within this JV, Hoi Hup Realty will possess a 65% equity stake, while SDPL will retain the remaining 35%.

• We assume Sunway’s portion of the land purchase price of S$122mil (RM420mil) to be funded by a combination of borrowings (80%) and cash (20%) based on its historical funding mix for land acquisitions. Based on Sunway’s cash balance of RM2bil as at 30 June 2023 and assuming payment in FY24F, we expect the group’s FY24F net gearing ratio to increase to 0.57x from 0.54x.

• While specific project details such as the gross development value (GDV) and layout plan have not been finalised, we estimate the project's GDV to fall within the range of S$536mil (RM1.8bil) to S$634mil (or RM2.2bil). This is based on Singapore’s average land cost to GDV ratio of 55% to 65%.

• The land rate of $703 psf per plot ratio (ppr) is 17% higher than the first EC site of $603 psf ppr (the tender was secured by other developers in May 2021) located along Tengah Garden Walk in Tengah town. However, we deem the purchase price as reasonable, taking into account the scarcity of land in Singapore and significant increase in the country’s residential property price since 2021.

• The land is strategically located at the heart of Tengah town, where there is a rising demand for new properties in the district. Notably, the first EC project on that site, namely Copen Grand was fully sold out within 1 month from its launch in October 2022, at an average price of S$1,340 psf.

• The site enjoys proximity to schools such as Anglo-Chinese School (Primary) and Princess Elizabeth Primary School. It is also situated near prominent areas such as the Jurong Regional Centre and the Jurong Lake District, which feature landmarks like the Jem and Westgate malls, Jurong Lake Gardens, and the future Singapore Science Centre. Additionally, it is close to the upcoming Jurong Innovation District, championed by the Jurong Town Corporation, a statutory board under Singapore's Ministry of Trade and Industry that advocates sustainable industrial development (Exhibit 3).

• Given the strategic location and rising demand of EC in Singapore, we are positive on the development which will help sustain Sunway’s property development earnings over the longer term.

• The stock currently trades at a compelling FY24F PE of 13x vs. its 5-year peak of over 20x and offers decent dividend yields of 3%-4%.

Source: AmInvest Research - 13 Sept 2023