Newsbreak

• Sunway has obtained the necessary approvals from Bursa Malaysia with regards to its earlier proposals: i) Listing of up to 2,804,471,128 Bonus Issue of Shares. ii) Admission to the Official List and the listing and quotation of the proposed up to 631,006,003 Bonus Issue of Warrants. iii) Listing of up to 631,006,003 new Sunway Shares to be issued pursuant to the exercise of the Warrants.

Comments

• While we do not expect any hiccups in Sunway?s proposed bonus issues of shares and warrants, the approvals came in ahead of our expectations, especially involving the first- of-its-kind step-down mechanism on warrant exercise price.
• To recap, Sunway proposed to issue 4 Bonus Issue of shares for every 3 existing shares and 3 free warrants for every 10 existing shares back in 14th June 2017.
• With the above approvals, we expect the group likely to hold an EGM in Aug to secure shareholders approval before finalizing the ex-dates and exercise price of the free warrants (based on 5-days VWAMP).
• Judging from the fast turnaround, we can expect the exercises to be completed before end of September.
• We reiterate our BUY call as the above approvals will serve as strong share price support reinforced by long term re-rating value play given its diversified income stream and recent reclassification under trading/services sector.
• Besides, potential assets unlocking worth up to RM1.4bn and the potential spin-off of growing healthcare business which could eventually fetch more than RM3bn are the other catalysts.

Risks

• Prolonged downturn in Johor?s property market;
• Execution risk.

Forecasts

• Unchanged.

Rating

BUY ↔ , TP: RM5.04 ↔

• Sunway remains our Top Pick within the sector as we believe it should be rerated and trade closer to its peers such as IJM and Gamuda (refer to Figure #1) given its diversified income stream and declassification from property sector. At a P/E of 13.6x as compared to peers, we opine that it represents a deep value stock with potential assets unlocking and growing healthcare business which are underappreciated.

Valuation

• Our TP of RM5.04 is derived based on SOP derived valuation with a 10% holding discount. .

Source: Hong Leong Investment Bank Research - 25 Jul 2017