Sunway has acquired a land measuring 3.69 acres in Wangsa Maju for a purchase consideration of RM37m, payable over two years. The proposed development is anticipated to mirror the success of Sunway Avila, sited just 200m away. The effective NPV of the project is estimated at RM11.4m or 0.1% of the estimated RNAV for the property segment, based on an 18% PBT margin (mid-point of management’s guided PBT margin of 15-20%). Maintain BUY with an unchanged TP of RM2.17, after pegging a 10% holding discount on SOP derived valuation of RM2.41.

NEWSBREAK

Sunway’s 55%-owned subsidiary, Sunway Avila, has acquired a land measuring 3.69 acres in Wangsa Maju for a purchase consideration of RM37m, payable over two years. The land comes with an approved development order and the proposed development is anticipated to mirror the success of Sunway Avila, sited just 200m away. Note that the first tower of Sunway Avila (405 service residences) launched in 1H19 has been 90% taken up within a short period of time, allowing Sunway to leverage on the existing customer base built within the area.

HLIB’s VIEW

Positive on the news. We are positive on the news as this expands future earnings base albeit marginally. The proposed development is targeted to launch in 2H21 with an estimated GDV of RM300m over a 6-year development period, housing 468 condominium units. Based on an 18% PBT margin (mid-point of management’s guided PBT margin of 15-20%), the effective NPV of the project is estimated at RM11.4m or 0.1% of the estimated RNAV for the property segment. The land acquisition price of c.RM230psf is fair given its freehold title and ability to garner a PBT margin of 15-20%. Net gearing is expected to remain unchanged at 0.36x (as at 2Q19).

Nearby Amenities. The land is located 550 meters from the Sri Rampai LRT station (accessible via a covered walkway) which is a mere 6 stops or 12 minutes to KLCC via LRT. Nearby amenities include Wangsa Walk Mall, Setapak Central Mall, Columbia Asia, Gleneagles KL, International School Kuala Lumpur, Sri Utama, Fairview International School and TAR College.

Forecast. Unchanged as the expected GDV and sales contribution from this project will take place only after 2021.

Maintain BUY with an unchanged TP of RM2.17 after pegging a 10% holding discount on SOP-derived valuation of RM2.41. Sunway remains our top pick given its well-integrated property and construction developments. 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 justify the re-rating of the stock.

Source: Hong Leong Investment Bank Research - 4 Nov 2019