News

• Sunway has proposed to acquire a freehold land of 4.53 acres along Jalan Belfield, Kuala Lumpur for RM165m.
• The proposed mixed development that is targeted to launch in 2H18 comprises of serviced apartments (RM1.05bn) and retail units (RM50m) with a combined GDV of RM1.1bn to be developed over a 5-7 years.
• The purchase is expected to be funded via debt and internal generated funds and to complete in 2H17. Financial Impact
• The implied land cost is circa. RM836 psf, translating to RM95 psf of GFA at a plot ratio of 8.8x. The cost of land is deemed competitive at circa. 15% of total GDV, which is within 20% benchmark.
• The group?s effective GDV is expected to increase by 2.2% to RM51.6bn with the proposed development.
• Assuming EBIT margin of 22%, the project?s NPV is estimated at RM110m (circa 1.1% of RNAV for property segment) and increase our target price by 0.6%.

Pros/Cons

• We are mildly positive as the acquisition is RNAV accretive to Sunway. This is coupled with competitive land cost given its proximity to city centre with approximately 3km away from Bukit Bintang and KL Sentral.
• Besides, it is easily accessible via major roads such as Jalan Syed Putra, Jalan Damansara and Jalan Istana. Maharajalela monorail station is less than 500 meters away.
• While the indicative selling price is not determined at current juncture, nearby project such as Opus @ KL by Bina Puri is selling at about RM1500 psf.
• For FY17, Sunway is targeting effective sales of RM900m underpinned by indicative launches of approximate RM2bn.

Risks

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

Forecasts

• We incorporate the proposed development into our model, resulting in incremental earnings of 1.2% for FY19.

Rating

BUY ↔ , TP: RM5.04 ↑

• We believe Sunway 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 13x 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

• Sunway is our Top Pick within the sector with a higher TP of RM5.04 (from RM5.01) based on SOP derived valuation with a 10% holding discount.

Source: Hong Leong Investment Bank Research - 05 Sep 2017