News

Sunway-Hoi Hup-SC Wong JV (30:51:19% stake) has won the land tender for Mount Sophia (see Figure #1) from Urban Redevelopment Authority of Singapore for S$442.28m. The land is strategically located 5 minutes to Dhoby Ghaut MRT Station, Orchard Road shopping belt and the cultural areas of little India.

The 99-year leasehold land spans 5.87 acres with a gross plot ratio of 1.5x (Gross Floor Area: 382.4k sq ft), translating to S$1,157/sq ft/plot ratio. The development will have a GDV of S$800m for low rise (2-6 storeys) condominium with 480 units, translating to ASP of about S$2,300/sq ft. The project is expected to be completed within 60 months.

Highlights

9th and biggest… The latest land tender is Sunway’s 9th successful land venture in Singapore. It is also the largest residential undertaking with a GDV of S$800m as compared to the The Peak@Toa Payoh’s GDV of ~S$680m. Sunway won the Sophia land by outbidding the closet rival by S$280k. Properties within the vicinity of Sophia Road have an ASP of S$2,000-2,400/sq ft, hence within the group’s projection.

Singapore continuity… It is a timely win for Sunway as its SeaEsta, Pasir Ris, condominium development (GDV: S$359m) has been fully sold, while Novena medical suites (GDV: S$915m) will be launched at the later part of this year. Hence, with Sophia, it will provide earnings continuity in Singapore. Unbilled property sales in Singapore stood at RM636m, representing 35% of its overall effective unbilled sales as of 1HFY13.

Off balance sheet… There is no impact to Sunway’s balance sheet as its Singapore venture is treated under equity accounting. We have always been favourable of its Singapore developments as it has a faster turnaround time, indicating quicker monetisation of its property development.

Risks

Execution risk; Regulatory and political risk (both domestic and overseas); Rising raw material prices; and Unexpected downturn in the construction and property cycle.

Forecasts

Tweaked FY14 earnings slightly upwards by 0.2%. We expect development profits from Sophia will only be significant from FY15 onwards.

Rating

BUY

Despite the potential headwinds from property tightening measures and slower contract flows, its recapitalised balance sheet and large order book will be able to sustain earnings growth. Hence, we maintain our BUY call on Sunway.

Valuation

Raised TP by 5.3% to RM3.35 from RM3.18 based on SOP valuation (see Figure #2) as we assigned a higher RNAV to its property division.

Source: Hong Leong Investment Bank Research - 18 Sep 2013