News

Yesterday, SUNWAY announced that its 56% owned subsidiary Sunway Iskandar Sdn Bhd (SISB) will form a 30:70 joint-venture (JVCO) with DAIWA to develop a parcel of land measuring 13 acres in Medini with land cost at RM63m.

Comments

The JVCO will acquire 13 acres of land from SISB at the cost of RM63m, translating to RM111psf and the project would have an estimated GDV of RM210m. Recall that the group’s land cost is around RM27psf back in Dec-2011.

In terms of pricing, it might seem a little pricey for the JVCO from a land cost to GDV perspective as the land cost makes up 27% of its estimated GDV of RM210m.

Beyond the one-off gain, we are neutral in the shorter term, as the project contributions from this are not sufficient for us to revise our earnings and sales forecasts. However, it is more long-term positive as we believe that SUNWAY will be able to leverage on DAIWA’s prefabricated housing technologies in its future developments, which could potentially lead to further cost savings in the long run.

Outlook

Its property unbilled sales and outstanding external construction orderbook remains fairly healthy at RM2.5b and RM1.7b, respectively, providing at least 1–1.5 years of visibility.

The listing of its construction arm, i.e. SUNCON is still on track, scheduled for mid-2015 or end-July, and we are expecting them to secure at least RM1.0b worth of external orderbook replenishments for FY15.

Forecast

No changes to our FY15E earnings, but we tweaked our FY16E net profit higher by 2% as we factored in the potential gain from the land disposal. However, our FY16E core net profit remains the same at RM620m.

Rating

Maintain MARKET PERFORM

Valuation

We continue to reiterate MARKET PERFORM on SUNWAY with an unchanged SoP-based TP of RM3.78. Post the listing of SUNCON, we expect our SoP-based TP of RM3.78 to be adjusted down to RM3.35, with the last traded share price hypothetically lowered from RM3.38 to RM3.14 (ref to report dated on 27th May 2015 for details). This would imply a limited total upside of 9%. Meanwhile, we are comfortable with our SoP assumptions considering we have applied better than sector’s average valuation for each segment. Post SUNCON listing, we see no near-term catalysts and expect the stock to consolidate.

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 Jun 2015