Journey to Wealth
Sunway - Selling Sunway Medical Centre to Sunway REIT
- Sunway Bhd (Sunway) announced that it is selling Sunway Medical Centre to its 36.7%-associate Sunway REIT for RM310mil.
- We are positive on this deal because:-
(1) At RM310mil, Sunway is selling at a favourable cap rate of 6.13% vis-a-vis 7% for recent hospital transactions for Al Aqar.
(2) Sunway would yield a gain of RM149mil or about 12sen/share.
(3) Taking out the borrowing attached to the hospital amounting to RM53.3mil, Sunway's net gearing is expected to be reduced to below 0.4x, with savings of up to RM2.4mil in interest expense annually.
- Further, the sale of this would keep intact our earnings estimates for FY12F. Recall that Sunway actually missed our estimates for 1HFY12, covering just about 40% of our forecast. Should the group would not be able to recognise sufficient progress billings, the gain on the disposal of this hospital would be able to more than offset the shortfall.
- However we believe there may not be any special dividends to be paid out to its shareholders, but the proceeds would be used to fund its ongoing and future projects.
- From a valuation standpoint, Sunway Bhd appears cheap, currently trading at FY13F PE of 8x supported by clear earnings visibility in the near to medium term.
- While there is deep value and clear earnings visibility ' (1) currently trading at 8x FY13F earnings and attractive 35% discount to its sum-of-parts value, (2) strong unbilled sales and construction order book of close to RM6bil ' the company lacks re-rating catalysts in the near to medium term.
- We reiterate our HOLD recommendation on Sunway, with our fair value kept at RM2.60/share ' based on a 25% discount to our sum-of-parts value of RM3.50/share.
Source: AmeSecurities
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