News

• Sunway entered into a JV agreement to acquire Austral Meridian Property Sdn Bhd which will enable Sunway to gain additional 8.45 acres of leasehold land along Jalan Peel.
• Sunway will hold 50+1% stake in JV with the remaining from LPK (40%) and CRSC (10%).
• The estimated GDV is approximately RM2bn to be developed over a 10 years period (comprising serviced apartments, office tower and retail shops) with target launch by 1H2018.
• Sunway has the option to increase the stake from 50+1% to 70+1% within 8 years period. Financial Impact
• After factoring in the subscription of equity stake of 50+1% for RM500k, shareholder advance of RM98m (based on effective stake of 70%) and additional funding of RM183m for additional 20% stake, the NPV to pay for the land cost is RM228m (for 70% stake), our calculation points to an implied land cost of RM886 per sf.
• With the plot ratio of 7x and estimated GDV of RM2bn, cost of land accounts for about 16% of total GDV, which is within the 20% benchmark.

Pros/Cons

• We are positive on the land acquisition given its strategic location directly opposite the RM4bn Sunway Velocity development. We expect the proposed development to have synergies with existing Sunway Velocity which comprises of Sunway Velocity Shopping mall, medical centre and hotel.
• The proposed land acquisition will increase group effective total GDV by 5% to RM32.5bn, which will sustain development period over 15 year.
• The NPV for project is estimated at RM83m or 4 sen per share.

Risks

• Prolonged downturn in Johor?s property market,
• Slowdown in property demand due to tightening of loan approval.

Forecasts

• Unchanged pending more detail from management.

Rating

BUY ↔

• We like the company given its unique integrated real estate business model which provides competitive edge against its competitor. Active capital management will continue to reward shareholders.

Valuation

• Maintain BUY with unchanged TP of RM3.75 based on SOP valuation.

Source: Hong Leong Investment Bank Research - 13 Feb 2017