News

• Sunway have proposed the disposal of Sunway Hotel Georgetown and Wisma Sunway for RM74m and RM60m, respectively to Sunway REIT . Sunway Hotel Georgetown is a 16 -stroey, 4 star hotel with vacant land used as car park, while Wisma Sunway is a stratified offic e building with 400 car park bays.

• There was no completion date mentioned on the proposed disposal. However, based on Sunway REIT’s announcement, it is expected to complete by 1HFY15.

Highlights

• We believe the move is sensible for the group to dispose its property investments to Sunway REIT as it would unlock the value of investments for both parties.

• The disposal will res ult in a cash inflow of RM134m and is expected to improve cash flow for the group. RM45m from the sales proceeds will be utilised to re pay Sunway’s existing bank borrowings and the remaining will be retained for working capital purposes.

• The group’s net gearing would be reduced from 0.31x to 0.29x post- disposal. Also, Sunway could enjoy interest savings from repayment of borrowing by circa RM2.1m p.a.

• Despite the dispos al, Sunway would continue to enjoy partial rental income through Sunway REIT. The former owns 34.5% of the latter. Hence, the absenc e of 65.5% rental income is expected to be offset by the interest savings mentioned earlier, resulting in an immaterial change to Sunway’s large earnings base.

• We do not dismiss potential of future dispos e of more assets under its property investment division to Sunway REIT given that it it the latter’s main sponsor. Apart from these two properties, the group still owns a handful of other assets such as Monash University, Sunway University, Sunway Giza, Sunway Lagoon, Lost World of Tambun, etc.

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, pending completion of the disposal.

Rating

BUY

• We remain optimistic about the group, especially with the proposed listing of SunCon as it would further enhance shareholders’ value.
• Hence, we are maintaining our BUY recommendation and continue to advise investors to accumulate.

Valuation

• TP remained unchanged at RM3.65 based on SOP valuations. Maintain BUY.

Source: Hong Leong Investment Bank Research - 9 Dec 2014