News

• Sunway’s subsidiary, Sunway Iskandar (56% owned by Sunway) enters into 30:70 joint venture with Daiwa for the acquisition of 13.02 acres land in Medini for RM63m.

• Sunway Iskandar is the vendor of the land. The land has lease tenure of 99 years from 2012 with 30 years extension from 2111 to 2141.

Highlights

• We are positive on the proposed deal as this will help to monetise and expedite development in Sunway Iskandar given concerns about slowdown in the southern region.

• We understand that Sunway-Daiwa JV is proposing a landed residential consisting of a mix of bungalows, semi-detached and cluster homes. The GDV for the development is estimated to be approximately RM210m. The fi rst launch is expected to be in early FY16.

• The land cost is about 30% of GDV and selling prices translate into RM111.2 psf which we think is premium as compared to recent SunSuria’s transaction at circa RM74psf in Medini. Based on our estimation, Sunway will pocket RM19m profit for the land sell given its 56% stake and land cost at only RM27psf. Given the lower effective stake for the proposed GDV (from 56% to 16.8%) and net margin assumption of 20%, the potential loss of profit from the proposed development on 13.02 acres land is about RM16.5m. On net basis, Sunway still earn extra RM2.5m (circa 0.4% to FY15 bottomline) with faster monetisation on the land. In addition, the proposed JV will also leverage on Daiwa’s expertise in prefabricated housing and attract potential Japanese buyer into Sunway Iskandar.

• As at 1QFY15, effective property sales was RM186m while its effective unbilled sales stood at RM1.8bn (1.5x of Sunway’s FY14 property development revenue). We expect property sales for FY15 to remain modest given tough market environment.

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.

Valuation

• Maintained BUY with TP remained unchanged at RM3.75 based on SOP valuations.

Source: Hong Leong Investment Bank Research - 12 Jun 2015