News

• Sunway Bhd announced that its wholly- owned subsidiary, Sunway Construction Sdn Bhd (SunCon) have signed the Letter of Acceptance (LoA) issued by SJIC Bina Sdn Bhd, a wholly-owned subsidiary of Iskandar Investment Bhd.

• The LoA is in relation to the proposed design, construction, testing and completion of the Coastal Highway Southern Link, Johor Darul Ta’zim (Design & Build) for RM169.9m.

• The propos ed project is expected to commence on 7 Jan 2015 with a contract period of 24 months.

Highlights

• We are positive with the announced project as it will further increase the group’s outstanding orderbook to RM3.3 bn (as at 29 Dec 2014). This implies 2.26x cover over Sunway’s FY13 construction revenue.

• The announced project would be the fourth largest orderbook replenishment after Sunway Velocity 2 Mall (RM350m), Sunway Iskandar – Citrine Service Apartments (RM200m) and Sunway Medical Centre Phase 3 (RM178m). The fifth largest project held by SunCon would be Sunway Geo Retail Shops & Flexi Suites of RM153m.

• The Coastal Highway Southern Link is expected to benefit Sunway Iskandar, a major township by Sunway, Khazanah and Iskandar Investment Bhd, and other developments in Medini Iskandar.

• This also includes surrounding developments by UEM Sunrise and Mulpha International Bhd as the highway will improved connectivity and shortened travelling time to the Second Link to Singapore.

Risks

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

Forecasts

• Unchanged.

Rating

BUY

• We remain optimistic about the group, especially with the proposed listing of SunCon as it would further enhance shareholders’ value.
• Henc e, 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 - 30 Dec 2014