News

• Sunway has entered into a JV agreement with Huatland Development Sdn Bhd with a 55% stake to form a JVCo.
• The JVCo will acquire a parcel of 4.34 acres freehold land in Wangsa Maju, Kuala Lumpur from Setapak Heights Development Sdn Bhd (which has the common shareholders with Huatland) for RM51.1m.
• The proposed mixed development (target launch in 2H18) comprises of serviced apartments and lifestyle retail units with a combined GDV of RM500m to be developed over a 5 years period.
• The purchase is expected to be funded via debt and internal generated funds with target completion by 4Q17. Financial Impact
• The implied land cost is circa RM270 psf or RM54 psf of allowable GFA at the plot ratio of 5x. The cost of land is deemed competitive at circa 10.2% of the estimated GDV.
• Based on the 55% stake, the estimated effective GDV is circa RM275m. It will increase the group’s effective GDV by 0.8% to RM36.2bn and total GDV will grow by 0.9% to RM54.0bn.
• Assuming PBT margin of 22%, the estimated NPV will mildly increase our estimated RNAV for property segment by 0.1%.

Pros/Cons

• We are mildly positive on the above RNAV accretive acquisition given the continued expansion in the group’s landbank at a competitive land cost. The proposed development allows Sunway to venture into more affordable segment with average selling pricing of RM550k.
• Besides, Sunway will leverage on the experience and know- how of the JV partner in the development within the vicinity and yield better return.
• The proposed development is also strategically located in less than 8km from KLCC and within 1.5km of amenities like Wangsa Walk Mall and Aeon Big Wangsa Maju with easy access via major highways like DUKE, AKLEH and MRR2. Meanwhile, Sri Rampai LRT station is only 850m away.

Risks

• Prolonged downturn in property market.
• Execution risk.

Forecasts

• We tweaked our FY19 earnings upward marginally by 3%.

Rating

BUY ↔ , TP: RM5.14 ↔

• Sunway is our Top Pick within the sector as we believe it should be rerated and trade closer to its peers such as IJM and Gamuda (Figure #2) 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 mature investment properties and the underappreciated trading and healthcare segment.

Valuation

• Our TP is unchanged at RM5.14 based on a 10% holding discount from SOP derived valuation of RM5.71 (Figure #3).

Source: Hong Leong Investment Bank Research - 17 Aug 2017