Highlights

We paid a visit to SWB’s high-profile Sunway Iskandar (SI) masterplan development (Figure #1) and came away feeling positive about its concept, locating and pricing.

Maiden launch: To kick-start this 1800-acre project, SWB will be launching Citrine (GDV: RM350m) officially in July, (Figure #2) although previews are already current taking place. We understand that out of the 3,000 registrants, 60% originate from KL/Johor while another 30% are from Singapore.

Citrine’s prospects. We believe SWB has put a lot of thought into the overall concept, and its introductory pricing of RM700 psf should see healthy buying interest. Next door, E&O’s Avira project has seen 70% takeup since its launch in Apr 14. However, management is cautioning for lower than usual margins, we believe likely to be in the low teens, but this will be mitigated by the corporate tax exemption in Medini until 2020.

Fast-track to critical mass. We concur with SWB’s strategy of starting off with an integrated high-rise development featuring high rise apartments together with retail and office elements. We believe that the office and international school (capacity: 600 students) will serve to bring up a healthy occupancy rate upon its completion in 3 years’ time, and help establish the necessary critical mass early on in its lifecycle.

Looking ahead... Citrine is located in the Lakeview Precinct (Figure #1). We understand SWB will be spreading out from Lakeview Precinct, with the subsequent launches likely to be the adjoining Marketplace and Seafront precincts, which will feature F&B/retail and residential elements. We understand SWB aims to ramp annual launches in SI up to RM1bn/year. SWB will also be looking for quality JV partners to bring in catalytic developments, similar to what UEMS has done for Nusajaya.

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

HOLD

Despite headwinds from property tightening measures and slower contract flows, its recapitalised balance sheet and strong backlog orders will be able to sustain earnings growth for the Group. Moreover, SWB’s integrated constructionproperty business model should give them an edge in terms of execution. However, in view of less than 10% upside from the current share), we maintan HOLD. A key upside risk to our call will be faster than anticipated take-up for its new property launches.

Valuation

TP minutely increased from RM3.38 to RM3.40 based on SOP valuation (see Figure #2), given relatively small size of Citrine’s impact.

Source: Hong Leong Investment Bank Research - 9 Jun 2014