Tianjin Eco-City Sunway Property Development Co. Ltd, a 60% owned JV of Sunway, has won a tender to acquire a land in Tianjin for a consideration of RM257.8m which will be used to develop Phase 3 of the Tianjin development. Based on management’s guided PBT margin of 15%, the effective NPV of the project is estimated at RM31.6m or 0.3% of the estimated RNAV for the property segment. Our pro-forma calculation implies that net gearing would increase to 0.38x from 0.36x (as at 2Q19) post acquisition. We maintain our forecast and BUY rating with an unchanged TP of RM2.17 based on a 10% holding discount from SOP-derived valuation of RM2.41.

NEWSBREAK

Tianjin Eco-City Sunway Property Development Co. Ltd, a 60% owned JV of Sunway, has won a tender to acquire a plot of land located in Tianjin, China. The land, measuring approximately 6.85 acres (298.3k sqft) was tendered at RMB438m (c. RM257.8m) and will be used to develop Sunway Gardens Phase 3 which comprises 7 blocks of condominiums to be launched in batches. The proposed development commands an estimated GDV of RMB1.3bn (RM765m) and is expected to commence in May-2020 and targeted to complete by May-2023.

HLIB’s VIEW

Positive on the news. Based on Sunway’s 60% stake in the JV, its effective share of the GDV is RMB780m (RM459m). Despite contributions expected to be recognised only upon completion (i.e. 2023), we are positive on the news as the JV’s development in Tianjin (Phase 1 and 2) achieved close to a 100% take up rate. Recall that Phase 2 of the Tianjin development is slated to complete by end-FY19, contributing c.RM55m to earnings. Based on management’s guided PBT margin of 15%, the effective NPV of the project is estimated at RM31.6m or 0.3% of the estimated RNAV for the property segment.

Land acquisition. The land price is approximately RM864 psf which is fair given its ability to fetch a PBT margin of 15%. Based on Sunway’s stake, Sunway is expected to fork out RM154.7m for the said acquisition. Our pro-forma calculation implies that net gearing would increase to 0.38x from 0.36x (as at 2Q19) post acquisition.

Forecast. Unchanged as contributions are expected to be recognised only in 2023 (upon completion).

Maintain BUY with an unchanged TP of RM2.17 based on a 10% holding discount from SOP-derived valuation of RM2.41. 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 - 13 Sept 2019