The Hoi Hup Realty-Sunway JV (65:35) has been awarded a land parcel measuring 6.16 acres at Tampines, Singapore for a consideration of SGD434.5m (RM1.32bn). The proposed Executive Condominium development will house approximately 700 units with an indicative GDV of over SGD800m (RM2430bn). Based on Sunway’s 35% stake in the JV, its effective share of the GDV is SGD280m (RM850.7m). We are neutral on the news in the short term given that earnings contribution is only expected in 2023/2024 and the effective NPV of the project is estimated at 0.2% of estimated RNAV for the property segment. We maintain our forecast and BUY rating with an unchanged TP of RM2.18 based on a 10% holding discount from SOP-derived valuation of RM2.42.

NEWSBREAK

The Hoi Hup Realty-Sunway JV (65:35) has been awarded a land parcel measuring 6.16 acres (268k sqft) at Tampines, Singapore for a 99-year lease term Executive Condominium Housing Development for a consideration of SGD434.5m (RM1.32bn). The proposed development will house approximately 700 units with an indicative GDV of over SGD800m (RM2430bn). Targeted launch of the development will be in 1H20 and is expected to complete by 2023.

HLIB’s VIEW

Neutral on the news. Based on Sunway’s 35% stake in the JV, its effective share of the GDV is SGD280m (RM850.7m). We are neutral on the news in the short term given that earnings contribution is only expected in 2023/2024 as the revenue recognition for an executive condominium in Singapore can only be done upon completion. Assuming an EBIT margin of 15%, the effective NPV (WACC: 12%) of the project is estimated at RM16.7m or 0.2% of the estimated RNAV for the property segment. The effective GDV of RM850.7m is expected to increase Sunway’s total effective remaining GDV for the group by 2.3% to c.RM37.6bn.

Land price. The land price is approximately SGD578 psf of GFA based on a plot ratio of 2.8x which is relatively fair given its proximity to an MRT station, Temasek Polytechnic and Singapore Institute of Technology. The effective land cost constitutes c.54% of estimated GDV, which is on par with developments in Singapore.

Gearing. Our pro-forma calculation implies that FY19 net gearing would increase to 0.44x from 0.34x post acquisition.

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

Maintain BUY with an unchanged TP of RM2.18 based on a 10% holding discount from SOP-derived valuation of RM2.42 (Figure #3). Despite the down cycle of both property development and construction sectors, we continue to like its 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 - 24 Jan 2019