Sunway Bhd; Buy; RM2.64
Price Target RM3.50; SWB MK

Sunway has acquired 24.5 acres of land in Paya Terubong, Penang via open tender for a purchase price of RM267.4m or RM251 psf bringing total landbank in Penang to 154 acres (+19%). The freehold land is strategically located with the centre of Penang island, surrounded by tourism spots such as Kek Lok Si Temple and the lower train station to Penang Hill Resort and matured residential townships. In terms of connectivity, it is linked to Georgetown via Jalan Air Itam and the West of Penang and the Penang Bridge via Jalan Relau.

With this acquisition Sunway intends to establish the Group’s first landmark development in Penang. The proposed development mix is 70% residential and 30% commerical comprising of commercial shops, SOHO and high-rise residential units with a GDV of approximately RM1.5b. Assuming a pretax margin of 15% and development duration of 8 years, total additional pretax profit could amount to RM225m.

Sunway’s net gearing as at 30 September 2013 is 0.5x. Assuming the land purchase is financed totally by bank borrowings, this would increase net gearing to 0.6x which is is still manageable. Separately, the Group also reported its property launches and sales target for FY2014 at RM1.8b with strategic launches in multiple geographic areas including the much awaited maiden Sunway Iskandar launch in 1Q14. For FY13, Sunway achieved total sales of RM1.8b surpassing its RM1.3bn target by 38%.

We maintain our BUY rating on Sunway with an unchanged TP of RM3.50. Valuations are inexpensive at 10x FY14 EPS and 1.0x NTA given assured and respectable earnings growth.

Source: HwangDBS Research - 18 Dec 2013