Sunway has entered into a JV with MKH to joint develop a mixed development on its 5.28 acres freehold land at Kajang area. We are neutral on the news given that any potential earnings contribution is only expected in 2021 and the impact to RNAV is minimal at only -0.1%. While the JV was a surprise, it is seen to leverage on MKH’s expertise and market knowledge in Kajang and we believe it may lead to more potential collaborations in the future. Maintain forecast and BUY rating with slightly lower TP of RM2.15 (from RM2.20) based on a 10% holding discount from SOP-derived valuation of RM2.39.

NEWSBREAK

Sunway has entered into a JV with MKH Berhad (not-rated) to jointly develop a mixed development on its 5.28 acres freehold land in Kajang by disposing 40% stake of Daksina Harta (subsidiary of Sunway which owns the land) at RM5m. Sunway owns 60% of the JV. The proposed service apartments/SOHO and commercial lots/retail podium development with an indicative GDV of circa. RM540m (effective GDV: RM324m) is expected to launch in 2020.

HLIB’s VIEW

Neutral on the news given that any potential earnings contribution is only expected in 2021 and the impact to RNAV is minimal. Recall that the land with semi-completed buildings structure erected was acquired back in Aug 2017 at a cost of RM63m. While the selling price for the 40% stake at only 7.9% of the original acquisition cost may appear to be at discount, we understand that the selling price is arrived after taking into account the net asset (i,e, debts included) of Daksina Harta.

RNAV impact is minimal. As we had previously imputed the project into our model based on the previous estimated GDV of RM460m, reducing 40% stake of the development based on a revised GDV of RM540m has reduced our estimated RNAV for property segment by only 0.1%. Meanwhile, Sunway's total effective remaining GDV for the group has also reduced by 0.7% to circa RM36.8bn.

JV could be first of many. The JV is seen to leverage on MKH’s expertise and market knowledge in Kajang. Also this provides opportunity for both Sunway and MKH to pool their resources and expertise to jointly develop this project. However, the news came as a surprise to us as we do not foresee any potential issue with Sunway taking on the TOD their own given the seamless integration with the existing MRT line. Hence, we believe this joint development may lead to more collaboration opportunities in the future.

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

Maintain BUY with lower TP of RM2.15 (from RM2.20) based on a 10% holding discount from SOP-derived valuation of RM2.39 (Figure #1) after taking into the lower TP of Suncon (BUY, RM1.86). Despite the down cycle of both property development and construction sectors, 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 - 29 Oct 2018