We visited Sunway Berhad (SUNWAY)’s flagship development project in Johor, namely the Sunway Iskandar yesterday, and came back feeling positive on Sunway Iskandar’s master plan as it could potentially replicate Sunway Resort City’s success in the Klang Valley. At the same time, we are also excited with the launch of Citrine at the Lakeview (GDV: RM300m) which marks the first phase of development in Sunway Iskandar as the take-up rate would be a major indicator on buying interests in the Iskandar region and whether buyers are becoming more discerning in selecting an evolving development in which SUNWAY could be the game changer on the property landscape in Iskandar. Hence, we reiterate our OUTPERFORM call on SUNWAY with an unchanged SoP driven Target Price of RM3.62.

Nature’s Capital City. Sunway Iskandar with an estimated GDV of RM30.0b is SUNWAY’s flagship township development measuring approximately 1,800 acres of land across Medini and Pendas in Iskandar, Johor strategically located in Nusajaya has close proximity to the Tuas Second Link (5 minutes) which connects Johor Bahru and Singapore through the proposed Southern Access link and 40% of its land would be preserved as green space which strikes a perfect balance between nature and city living lifestyle.

Emulating Sunway Resort City’s success. We note that the management would be emulating Sunway Resort City’s successful development approach in Sunway Iskandar through value creation and enhancements in townships security, connectivity and also accessibility to public amenities. Sunway Iskandar will be a low-density development (plot ratio: 1) that consists 6 selfsustaining and interconnectable precincts namely the Capital, the Market Place, the Riverside, the Parkview, the Seafront and the Lakeview that would have easy access to world-class amenities i.e. retail malls, education hub, medical city, and theme parks coupled with tight security features due to SUNWAY’s strong auxiliary police force.

Citrine, the beginning of Sunway Iskandar. In 3Q14, management is looking forward to launch its first phase of development in Sunway Iskandar namely Citrine at the Lakeview (GDV: RM300-350m), which consists 328 units of service apartments, 167 units of designer office suites, and also 51 retail units (managed by SUNWAY) with interconnectable car parks. Its serviced apartments will be adjacent to its upcoming Sunway International School and home owner-occupiers’ children could potentially enjoy lower tuition fee rates for being a part of Sunway Iskandar’s community. Hence, with its well-planned integrated amenities which will be on-going and evolve over the development of Sunway Iskandar and being competitively priced at c.RM700 psf vis-à-vis the pricing ranges c.RM600-1000 psf on the developments nearby like Meridin @ Medini, Medini Signature, Iskandar Residences, Paradiso Nuova and etc. which are mostly ‘one-off’ developments, we believe that Citrine’s service apartments would garner strong interest from foreign working nationals nearby i.e. Pinewoods Studio (right beside Sunway Iskandar). As there are no major office developments in Medini, we believe that its designer offices should fare well coupled with the fact that Medini has an exemption from corporate tax up to 2020 for selective industries. However, we do note that Citrine’s take-up rate upon launch in 3Q14 would be major indicator of whether interests are still present in the Iskandar region and also if buyers are becoming more discerning in selecting an evolving development rather than one-off type of development.

OUTPERFORM maintained. We reiterate our OUTPERFORM call on SUNWAY with an unchanged SoP driven Target Price of RM3.62 for its synergistic business, which enriches its core driver as an integrated township developer and also its ability to create and enhance value to its developments.

Source: Kenanga