Sunway has announced further information in relation to the proposed ICPS. The Conversion Price will be set at the lower of RM1.00 per Sunway Share; or a 20% discount to the 5-day VWAMP of Sunway Shares immediately before the price-fixing date. Existing warrant holders will have their exercise price and number of warrants adjusted, with details to be finalised at a later date. We maintain our forecast and BUY rating with an unchanged TP of RM1.95 based on a 10% holding discount to a SOP-derived value of RM2.17.

NEWSBREAK

Sunway has announced further information in relation to the proposed ICPS which includes: (i) additional clause on the Conversion Price; (ii) adjustment of warrant exercise price; and (iii) adjustment of numbers of warrants.

HLIB’s VIEW

Additional clause on the Conversion Price. To recap, Sunway proposed the rights issue of up to 1.1m new ICPS at an issue price of RM1.00 per ICPS to all its entitled shareholders on the basis of 1:5 existing ordinary shares. Pursuant the recent announcement, the Conversion Price will be set at the lower of RM1.00 per Sunway Share; or a 20% discount to the 5-day VWAMP of Sunway Shares immediately before the price-fixing date. Nonetheless, we continue to expect the Conversion Price to be remain at RM1.00 as we do not expect the 5-day VWAMP to fall below RM1.25 (which would result in a post-20% discount figure lower than RM1.00).

Warrant adjustments. Furthermore, existing warrant holders will also have their exercise price and number of warrants adjusted, with details to be finalised at a later date. For illustrative purposes (by using RM1.55, being the 5-day VWAMP of Sunway Share as of 27 May), the warrants will have a downward adjustment on the exercise price by RM0.09 and an additional 39.6m warrants to be distributed equally towards the 630m existing warrant holders.

Further information on ICPS. Sunway has further clarified that no ordinary dividend shall be declared in respect of ordinary shares or other classes of preference shares until the preferential dividend on the ICPS in the relevant financial year during which the ordinary dividend is to be declared.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM1.95 based on a 10% holding discount to a SOP-derived value of RM2.17. Sunway remains our top pick given its well integrated property and construction segments. 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 - 7 Jul 2020