Sunway has been awarded a land parcel (4.46 acres) at Canberra Link, Sembawang, Singapore via a JV (35% stake) with Hoi Hup Realty for SGD271m (~RM817.2m). The proposed executive condominium housing development with an indicative GDV of more than SGD500 million (effective GDV: RM527.7m) is expected to launch in 2020. While the acquisition price is deemed fair, we are neutral on the news given that the earnings contribution is only expected in 2022/2023 and the effective NPV of the project is estimated at only 0.3% of RNAV for property segment. Maintain forecast and BUY rating with unchanged TP of RM2.20 based on a 10% holding discount from SOP-derived valuation of RM2.45.

NEWSBREAK

Sunway has been awarded a land parcel (4.46 acres) at Canberra Link, Sembawang, Singapore via a JV with Hoi Hup Realty through a successful tender for SGD271m (~RM817.2m). Sunway owns 35% of the JV and the proposed executive condominium housing development with an indicative GDV of more than SGD500 million (effective GDV: RM527.7m) is expected to launch in 2020.

HLIB’s VIEW

Neutral on the news given that the earnings contribution is only expected in 2022/2023 as the revenue recognition for an executive condo can only be done upon completion. Assuming an EBIT margin of 15%, the effective NPV of the project is estimated at RM28.6m or 0.3% of the estimated RNAV for property segment. The effective GDV of RM527.7m is expected to increase Sunway's total effective remaining GDV for the group by 1.5% to circa RM37bn.

Land price. The land price is approximately SGD558 psf of GFA based on a plot ratio of 2.5x which is fair at the location of 300m away from MRT station, which is expected to open by 2019. The effective land cost constitutes circa 54% of the estimated GDV, which is on par with developments in Singapore.

Gearing. Assuming the acquisition price of RM817.2m (effective: RM286.0m) is fully funded by debt, the net gearing may inch up to 0.48x from the current 0.44x.

Forecast. Unchanged as no material impact is expected in the near term

Maintain BUY with unchanged TP of RM2.20 based on a 10% holding discount from SOP-derived valuation of RM2.45 (Figure #3). We continue to like the resilient integrated real estate business model and earnings growth prospect with mature investment properties and underappreciated trading and healthcare businesses.

Source: Hong Leong Investment Bank Research - 13 Sept 2018