News

Successfully tendered for 4 parcels of freehold land measuring 24.5 acres (1.07m sq ft), situated along Jalan Paya Terubong, Penang (see Figure #1), for RM267.4m (RM251/sq ft). The acquisition is expected to be completed within 3 months.

Highlights

About the land… The land is located within the vibrant center of Penang Island and is surrounded by tourism spots i.e. Kek Lok Si and Penang Hill, and matured townships. It also has good connectivity to the Airport, Penang Bridge and City Center.

Proposed development… The land has a gross plot ratio of 2.4x (Gross Floor Area: 2.56m sq ft), translating to RM104.5/sq ft/plot ratio. The development will have an estimated GDV of RM1.5bn comprising of commercial shops, SOHO and residential units. Assuming a setback of 30%, the ASP is RM837/sq ft based on NFA of 1.79m sq ft. We believe that the ASP is on the high side, however if compared to IJM Land’s – The Light, it is on par.

Slight boost… With the latest acquisition, it will lift Sunway’s landbank in Penang to 145 acres with total Penang GDV of 3.3bn, which represents 6% of Sunway’s overall GDV.

Net gearing still comfortable… Based on 3QFY13’s numbers, the acquisition will see Sunway’s net debt rising to RM1.55bn from RM1.29bn, with net gearing rising to 33.4% from 27.7%, which is still comfortable.

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

Unchanged.

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

TP maintained at RM3.35 based on SOP valuation (see Figure #2).

Source: Hong Leong Investment Bank Research - 18 Dec 2013