- We re-initiate coverage on Sunway, with a Hold call at a fair value of RM3.55/share, based on a 10% discount to our SOP value of RM3.95/share.

- Last Friday, the company announced a 1-for-3 renounceable rights issue of up to 594.55mil shares for RM1.70 each, a 36.3% discount to the theoretical ex-rights price of RM2.67 (based on the 5-day VWAP up to 4 April of RM2.99). It has also proposed a 15% ESOS of up to 232.65mil shares.

- Based on the minimum and maximum subscriptions levels, Sunway is expected to raise between RM362.6mil and RM1.01bil – c.60% of which would be used to fund capex and c.30% for debt repayment, with the bulk of the remaining for working capital. It is expected to be completed by the fourth quarter of the year.

- This will allow investors to increase their participation in Sunway’s fundamentally-driven prospects that are underpinned by:- 1) The second coming of Bandar Sunway, in Iskandar Malaysia, 2) Property unbilled sales of RM2.8bil as at 31 Dec 2012, 3) A healthy construction order book of c.RM5.7bil, with the outstanding amount at c.RM4.2bil. 4) Active property investment arm, with contributions from SunREIT.

- Prior to the announcement last Friday evening, Sunway’s share price rose to a 52-week high of RM3.16/share. It has been on an upward trend upon its re-rating stemming from its exposure in Iskandar Malaysia.

- Sunway aims to develop nearly 1,770 acres of land in Iskandar Malaysia over a span of 15 years, with a potential GDV of RM30bil. Its Iskandar landbank value is estimated to have risen by 40%-50% over the past year. It also has 88 acres of undeveloped landbank in Bukit Lenang, within Johor Bahru.

- Sunway Iskandar will in essence be Bandar Sunway’s second coming, as the group aims to replicate the mature township’s model and success in the southern tip of the country. By all accounts, the township in Iskandar Malaysia would be bigger and even more modern.

- This time around, there would be cost advantages due to:- 1) ready infrastructure in Iskandar Malaysia vs. Bandar Sunway’s original derelict tin-mining land; and 2) Sunway would have learnt valuable lessons developing a township as big as Bandar Sunway, and specifically, the Sunway integrated resort city.

- The group has communicated its policy to pay dividends at a ratio of 20% of earnings, for a potential yield of 2%.

Source: AmeSecurities