News

Yesterday, Sunway Bhd (SUNWAY) made an announcement that it is acquiring 5 parcels of land in Kelana Jaya measuring 17.0 acres for a total consideration of RM286.0m or RM386.3psf.

Comments

We were not entirely surprised with the landbanking move by SUNWAY as we have previously highlighted in our sector report dated 6/4/15 that we were expecting developers to landbank as land owners are becoming more realistic with their selling prices.

These 17.0 acres of land are situated adjacent to Western Digital factory fronting the LDP highway, which is approximately 1.5km away from MAHSING’s Icon City. (Kindly refer overleaf for more details.)

Out of these 17.0 acres, 16.8 acres are leasehold land under commercial title while the remaining 0.2 acres are freehold land with residential title with plot ratio of 4.0x. Based on 4.0x plot ratio and an assumed RM800.0psf (average asking price of Icon City) and utilisation rate of 75.0%, these 17.0 acres of land would have a potential GDV of RM1.8b.

We deem the purchase price of RM286.0m fair as the total land cost makes up 16.0% of potential GDV of RM1.8b and the price tag of RM386.3psf is comparable to Tropicana’s land sales in Subang Jaya and Mentari that were transacted at RM350.0psf and RM440.0psf, respectively in 2H14.

As of 4Q14, SUNWAY’s net gearing stood at only 0.29x, and we would expect it to inch up to 0.34x post acquisition of these 17.0 acres of land and WINSTAR.

Outlook

As for the listing of its construction arm SUNCON, we believe that it is right on track by the end/beginning of 1H15/2H15. To recap, SUNWAY’s shareholders could stand to gain 33.3-38.9 sen special dividends (inclusive of SUNCON shares) from the listing of SUNCON.

Forecast

No change to our FY15-16E earnings at this juncture as SUNWAY is targeting to launch this particular project closer to the end of 2016.

Rating

Maintain OUTPERFORM

Valuation

We reiterate our OUTPERFORM call on SUNWAY with a higher SoP-driven TP of RM3.78 (previously, RM3.76), as we believe that there will be more excitement closer to the listing of its construction arm (SUNCON). Our Target Price is slightly higher (+2.0 sen) after factoring in the potential GDV of RM1.8b from the new landbank in Kelana Jaya.

Risks to Our Call

Weaker-than-expected property sales and construction orderbook replenishment.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environments.

Source: Kenanga Research - 12 May 2015