Sunway announced the execution of a trust deed to establish a private trust in Singapore which will acquire purpose-built student accommodations in the UK. We believe this to be accretive to Sunway’s diversified earnings base over the long run. The Trust will have an initial AUM of c.GBP38m or RM202m which is expected to be injected by the end of the year. Our pro-forma calculation implies that net gearing would increase to 0.38x from 0.36x (as at 2Q19) post injection. We note that this sum will be sufficient to acquire a student accommodation located in a prime location which has been earmarked for acquisition and will be announced at a later date. 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

Sunway announced that its subsidiary Sunway RE Capital Advisors (SG) Pte Ltd has executed a trust deed with RBC Investor Services Trust Singapore Ltd to establish a private trust in Singapore known as Sunway Residence Trust to acquire purpose-built student accommodations in the UK. Upon acquisition, a fund manager will be established to provide fund management services and appoint an operator to manage the properties acquired.

HLIB’s VIEW

Positive on the news. We are positive on the news as this provides Sunway with a new source of recurring income. The Trust will be investing in high quality, well located student accommodations with potential for long-term capital appreciation and recurring income that will be yield accretive to the portfolio. As such, we believe this to be accretive to Sunway’s diversified earnings base over the long run.

Capital injection. The Trust will have an initial AUM of c.GBP38m or RM202m which is expected to be injected by the end of the year. Our pro-forma calculation implies that net gearing would increase to 0.38x from 0.36x (as at 2Q19) post injection. We note that this sum will be sufficient to acquire a student accommodation located in a prime location which has been earmarked for acquisition and will be announced at a later date.

Forecast. Unchanged pending further details on the potential acquisition.

Maintain BUY with an unchanged TP of RM2.17 based on a 10% holding discount from SOP-derived valuation of RM2.41. Sunway remains our top pick given its well integrated property and construction development. Its hidden gem, the healthcare business (with 4 new hospitals coming on stream over the next three years) has yet to be appreciated as it is embedded within the parent-co. These coupled with the resilient earnings from mature investment properties alongside its growing building materials business and quarry operations justifies for the re-rating of the stock.

Source: Hong Leong Investment Bank Research - 17 Oct 2019