News

• Sunway entered into a share sale and purchase agreement with Kelana Resort Sdn Bhd to acquire 100% of Cleaver Fortune Sdn Bhd, the beneficial owner of 731,634 sf leasehold land for RM282.64m.

• The group also entered in a sale and purchase agreement with Viva Variasi Sdn Bhd for the acquisition of 8,708 sq of freehold land for RM3.36m.

• The acquired lands are strategically located in Petaling Jaya. The proposed acquisitions are expected to be competed by

Highlights

• 2WHeF Ya1re5 . positively surprised by the proposed acquisitions. Although they are in tandem with the group’s obj ecti ve to replenish its landbank, we were surprised by the land status which is ready for immediate launch.

• We understand that Sunway is proposing a mixed development comprising 7 residential blocks with a commercial podium. The GDV for the development is estimated to be approximately RM1.8bn (estimated average selling price of RM800 psf). The first launch is expected to be in FY16 over a development period of approximately 5 years.

• With the average price/sf of RM386.31, we believe the acquisition price is fair as transactions done surrounding the acquired lands are priced between RM300-500 psf. Furthermore, the location of the land is very strategic as it is easily accessible from major highways, close proximity to public transport as well as airport.

• The proposed acquisition will be funded through bank borrowings and internally generated funds. Based on its latest balance sheet figures, the acquisition would increase Sunway’s net gearing marginally by 0.30x to 0.35x. The group would still be able to carry out more landbanking exercises before it reaches a net gearing level of 0.5x (or additional RM880m).

• Post-acquisition, Sunway would have a total landbank of 3,380 acres with total effective GDV of RM50.8bn.

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

• We remain optimistic about the group, especially with the proposed listing of SunCon as it would further enhance shareholders’ value.
• Given that target price have now provided more than 10% upside from share price, we now upgrade the stock from HOLD to BUY.

Valuation

• TP remained unchanged at RM3.75 based on SOP valuations. Upgrade to BUY.

Source: Hong Leong Investment Bank Research - 12 May 2015