Sunway is proposing to dispose its entire 30% stake in Hoi Hup Sunway Novena for SGD 39.9m (~RM118m). The JV has completed the project called Royal Square at Novena in July 2017. We are neutral on the disposal given the disposal price is on par with the net book value at SGD40m. The disposal will enable Sunway to monetise its investment in the JV and redeploy the funds on existing projects to enhance the overall ROI. Our forecast is unchanged with no material impact expected. Maintain BUY with unchanged TP of RM2.30 based on a 10% holding discount from SOP-derived valuation of RM2.55.

NEWSBREAK

Sunway is proposing to dispose its entire 30% stake in Hoi Hup Sunway Novena for SGD 39.9m (~RM118m). The JV company was set up back in 2012 to undertake a development called Royal Square at Novena, Singapore which comprises of a hotel, medical and retail units with a total GDV of SGD776m. The project was completed back in July 2017.

HLIB’s VIEW

Neutral on the disposal given that the disposal price is on par with the net book value of Sunway’s 30% stake in the JV at SGD40m. An initial loss of only SGD100k at JV level is estimated from the disposal. However, Sunway is entitled to additional compensation from any sale of the remaining unsold medical and retail units (~30%) at Royal Square above the cost of development plus 5% profit margin for a period of 30 months from 31 March 2018.

Redeploying the funds to enhance ROI. The proposed disposal will enable Sunway to monetise its investment in the JV and redeploy the proceeds from the disposal as working capital on existing projects such as Mount Sophia and Rivercove Residence and fund the recent land acquisition of Brookvale Park. In turn, Sunway will forgo its share of recurring income generated from the investment properties in Courtyard Hotel by Marriott Singapore.

Forecast. Unchanged as no material impact is expected.

Maintain BUY with unchanged TP of RM2.30 based on a 10% holding discount from SOP-derived valuation of RM2.55 (Figure #1). We see value emerging given the weakness in share price in view of the resilient business model and earnings growth prospect. At a current P/E of 12x, we opine that it is a deep value stock with mature investment properties and underappreciated trading and healthcare businesses.

Source: Hong Leong Investment Bank Research - 27 Jun 2018