News

• Sunway has proposed to acquire Brookvale Park, a 160-unit private residential estate with a land area of 373k sqft in Clementi, Singapore for SGD530m (~RM1.59bn).
• A JV company between Hoi Hup Realty Pte Ltd, Sunway and S C Wong Pte Ltd will undertake the project with equity interest in the proportion of 60% : 30% : 10%.
• The site will be redeveloped into a new private residential development with an allowed plot ratio of 1.6 times. Financial Impact
• The purchase price of SGD530m is the minimum tender price for the site, working out to be SGD807 psf (~RM2,421 psf) of allowable GFA including a 10% bonus balcony area.
• The acquisition cost of RM210m to Sunway (30% stake based on a debt to equity ratio of 1.27x) will only marginally increase its gearing ratio to 0.36x from 0.34x currently.
• While there are no development details being shared, the redevelopment project could potential fetch a GDV of SGD837m (~RM2.5bn), based on a selling price of SGD1,700 psf and an efficiency ratio of 75% of GFA.
• Assuming an EBIT margin of 15%, the effective NPV of the project is estimated at RM66.8m or 0.7% of the estimated RNAV for property segment.

Pros/Cons

• We are neutral on the proposed acquisition as it has no material impact to our TP. The land cost alone (before any demolishment cost) constitutes circa 63% of the estimated GDV, which appears to be on the high side.
• However, this is not unusual in Singapore for a mature area in Sunset Way enclave, which is easily accessible via Bukit Timah Road, Clementi Road, the Pan Island Expressway and Ayer Rajah Expressway.
• The effective GDV of RM753m is expected to increase Sunway's total effective remaining GDV for the group by 2% to circa RM38bn.

Risks

• Prolonged downturn in property market.
• Execution risk.

Forecasts

• Unchanged pending more details on the GDV and we expect the project to only contribute from 2020 onwards.

Rating

BUY ↔ , TP: RM2.25 ↔

• 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 #1) given its diversified income stream and declassification from property sector. At a forward P/E of 13x as compared to peers, we opine that it is a deep value stock with mature investment properties and the underappreciated trading and healthcare businesses.

Valuation

• TP is unchanged at RM2.25, based on a 10% holding discount from SOP derived valuation of RM2.50 (Figure #2).

Source: Hong Leong Investment Bank Research - 19 Feb 2018