News

Last Friday, SUNWAY made two separate announcements on land acquisitions;(i) freehold industrial land in Kelana Jaya from Tamura Electronics (M) SdnBhd for a total consideration of RM35.8m or RM169.95psf, and (ii) two parcels of leasehold land measuring 2.25 acres and 2.0 acres in Kampung Baru Subang from View2Pick SdnBhd (V2P) and Chen Yew Plastics Sdn Bhd for RM9.0m (RM91.83psf) and RM11.2m (RM128.85psf), respectively. However, these two parcels of land would be acquired through the joint-venture set up by SUNWAY with V2P on a 80:20 basis, whereby SUNWAY would inject its land measuring 2.1 acres for industrial park development purposes, upon the completion of the amalgamation of the three parcels of land.

Comments

SUNWAY’s move in acquiring more land banks is not surprising. In fact, we had been anticipating developers to be more active in landbanking activities since our sector report dated 6/4/15. In 2016, SUNWAY would be the first developer in making a landbanking move with the several parcels of land to be acquired as mentioned above.

On a land cost to GDV perspective, both Kelana Jaya and Kampung Baru Subang land acquisition cost makes up 35.8% and 29.8% of the prospective GDVs of RM100.0m and RM110.0m, respectively. While it is slightly higher than our usual comfortable land cost to GDV threshold of 20%, we deem the land acquisition costs as still fair given their industrial purposes. Furthermore, it is still comparable with the surrounding bid prices from nearby industrial parks RM137.99psf (Sungai Penaga) to RM400.0psf (Hicom-Glenmarie), while Kampung Baru Subang bid prices ranges between RM94.06psf - RM126.26/psf.

Outlook

SUNWAY is expected to release its FY15 results on 26/2/16. Judging from its 9M15 sales performance of RM734.0m, we believe that SUNWAY should be able to meet our sales estimates of RM1.0b. Its property unbilled sales remain fairly healthy at c.RM2.3b, providing at least 1–1.5 years of visibility and we believe that it is sustainable at that level should they are able to meet our FY15 sales estimates of RM1.0b.

Forecast

Following the recent earnings downgrade on SUNREIT from our REIT analyst, we trimmed our FY15-16E earnings lower by 1%- 2% to RM565.6-484.5m, and we do not expect any earnings contribution in FY15-16E from the two projects above, as the project launches are only expected in FY17.

Rating

Maintain MARKET PERFORM

Valuation

While the acquisition would add 1.0 sen to our previous SoP driven TP of RM3.27, we lowered our TP to RM3.20 after the adjustment in our valuation for SUNREIT of which our REIT analyst has downgraded to RM1.60 (previously, RM1.73). Our applied discount of 54% on its property division is close to our overall sector average discount of 53%. We also maintain our MP call on SUNWAY due to the lack of re-rating catalyst in the property division.

Risks

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 - 22 Feb 2016