Sunway has entered into a Privatisation Agreement for the rights to develop a land (9.5 acres/412k sqft) in Kota Damansara. The consideration given consists of two components: i) rights value of RM36.6m; and ii) revenue share of RM50m or 8.88% of gross sales value, whichever is higher. The proposed development will comprise of 825 serviced apartment units (indicative GDV: RM544m). The project will be launched in phases and is expected to complete in 2025, with the first launch targeted in FY20. Assuming a PBT margin of 17.5%, the effective NPV (WACC: 10%) of the project is estimated at RM26.8m or 0.3% of estimated RNAV for the property segment. We maintain our forecasts and BUY rating with an unchanged TP of RM2.18, based on a 10% holding discount from SOP - derived valuation.

NEWSBREAK

Sunway has entered into a Privatisation Agreement with Perbadanan Kemajuan Negeri Selangor for the rights to develop a leasehold land measuring 9.5 acres (412k sqft) at Kota Damansara, Selangor. In exchange, the consideration consists of two components: i) rights value of RM36.6m; and ii) revenue share of RM50m or 8.88% of gross sales value, whichever is higher. The proposed development will comprise of 825 serviced apartment units with an indicative GDV of RM544m. The project will be launched in phases and is expected to complete in 2025, with the first launch targeted in FY20.

HLIB’s VIEW

Neutral on the news. Based on Sunway’s 60% stake in the project, its effective share of the GDV is RM326.4m. We are neutral on the news as contributions are relatively small and will be spread over a total of 5 year development period. Assuming a PBT margin of 17.5% (mid-point of management’s guidance), the effective NPV (WACC: 10%) of the project is estimated at RM26.8m or 0.3% of estimated RNAV for the property segment. Note that the margin has taken into account the revenue share of the consideration.

Consideration. The consideration is approximately RM86.6m (including revenue share of RM50m), which is fair given its ability to garner a decent PBT margin and proximity to a Sunway Giza, Sunway Nexis, IKEA Damansara, education institutions, Thomson Hospital and MRT stations (Kota Damansara and Surian). The land has easy access to major highways, namely NKVE, LDP and the soon to be completed DASH highway.

Gearing. Our pro-forma calculation implies that FY19 net gearing would remain unchanged at 0.32x post acquisition as the payment will be staggered over the next 5 years.

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 #2). 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 - 2 Jul 2019