- We maintain BUY on Sunway, with an unchanged fair value of RM3.74/share, based on a 20% discount to the SOP value of RM4.65/share.

- Upon the launch of its prospectus yesterday, the institutional portion of the IPO of its construction division had been fully covered, with the oversubscription rate and institutional price to be determined at the close of the institutional offer period on 7 July. The institutional offering comprises 327.6mil shares (25.3%) in Sunway Construction Group Bhd (SCG), while the retail portion entails 71.11mil shares. The retail offering closes on 6 July. Sunway has secured the participation of 10 cornerstone investors to take up to 135mil shares at RM1.20/share, subject to the final price determination. The indicative range is RM1.15 -RM1.20/share.

- Sunway has also priced the retail portion at RM1.20/share – representing a prospective PE of 13x FY15F, in line with our earnings projection for the construction division of RM117mil or 9sen/SCG share. SCG has revised its dividend policy to paying out at least 35% of net profit from the 20% that was initially proposed under its draft prospectus. Of the 573.7mil shares under the IPO, Sunway had on 5 June 2015 distributed dividend-in-specie 175mil shares to shareholders.

- Sunway now expects to distribute a special cash dividend of 25 sen-28 sen to shareholders – representing 89%-94% of the cash proceeds and translating into a yield of 7%-8%. This is better than our special dividend assumption of 22.5 sen/share. We have also assumed a regular dividend of 10 sen/share.

- As at end-March 2015, SCG held an outstanding order book of RM2.76bil. Management is maintaining its target of securing RM2bil worth of contracts annually (including FY15F). These include potential building jobs in Putrajaya. SCG is banking on RM500mil-RM800mil worth of jobs annually (comprising mostly commercial buildings and facilities), stemming from Sunway’s projects, a robust domestic construction sector and HDB public housing development in Singapore (which benefits its precast concrete division).

- For FY14, SCG posted a net profit of RM124.8mil, representing an ROE of 38%. As at end-FY14, SCG had a net cash position, with mostly short term debt of RM132mil and cash of RM291.6mil. Management does not expect net gearing at any point in time to exceed 30%.

- Maintain BUY on Sunway, for a dividend yield of 10%-11% (including regular payout). Sunway will continue to benefit from the growth potential of SCG, given that it would have at least a 51% stake, post listing.

Source: AmeSecurities Research - 30 Jun 2015