Sunway entered into a SSA to acquire 100% of total issued and paid-up share capital of Dolomite Granite Quarry Sdn Bhd (Dolomite Quarry) including 4 parcels of leasehold lands (c.784 acres) and the plants and machinery located on the lands for a purchase consideration of RM125m. Dolomite Quarry is primarily in quarrying and mining operations. Our proforma calculation implies that FY19 net gearing will increase to 0.34x (from 0.32x) post acquisition, which is still below Sunway’s threshold of 0.5x. Our forecast remains unchanged as we note that contributions are expected to be minimal at this juncture. Maintain BUY with an unchanged TP of RM2.18 based on a 10% holding discount from SOP-derived valuation of RM2.42.

NEWSBREAK

Sunway has entered into a SSA to acquire 100% of total issued and paid-up share capital of Dolomite Granite Quarry Sdn Bhd (Dolomite Quarry) including 4 parcels of leasehold lands (c.784 acres) and the plants and machinery located on the lands for a purchase consideration of RM125m. Dolomite Quarry is primarily in quarrying and mining operations.

HLIB’s VIEW

Positive on the news. We remain positive on the news as we believe that the quarry business will be a new pillar of growth moving forward, further establishing Sunway as a successful conglomerate. Recall that earlier on 29 March Sunway also entered into a SSA to acquire another quarry business, Blacktop Industries Sdn Bhd (BISB) for a purchase consideration of RM70.1m. The proposed acquisition of Dolomite Quarry will increase the total number of quarries under Sunway’s operations to 9 (from 8). Note that these figures have included BISB’s 2 quarries. Post-acquisition, market share of the quarry business in Klang Valley increases to 22% (from 15%) while nationwide increases to 15% (from 10%).

Net gearing. Our proforma calculation implies that FY19 net gearing will increase to 0.34x (from 0.32x) post acquisition, which is still below Sunway’s threshold of 0.5x.

Forecast. Unchanged as we note that contributions are expected to be minimal at this juncture.

Maintain BUY with an unchanged TP of RM2.18 based on a 10% holding discount from SOP-derived valuation of RM2.42. 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 - 10 Jun 2019