Yesterday, SUNWAY announced that they along with their joint-venture partner in Singapore have won a tender bid for a parcel of land measuring 5.19ac in Anchorvale Lane at Sengkang for a total consideration of SGD240.9m. We are mildly positive with the land tender win as it provides continuity to its development and presence in Singapore. No changes to FY16-17E core earnings. Maintain MARKET PERFORM with higher TP of RM3.23 based on SOP (previously at RM3.22).

News. Yesterday, SUNWAY announced that they along with their joint-venture partner in Singapore (joint-venture: HOIHUP, SUNWAY, ORIENTAL, and AZUKI with an equity proportion of 62:30:5:3) has won a tender to acquire from the Housing and Development Board of Singapore a 99-year leasehold land at Anchorvale Lane measuring 5.19ac for SGD240.9m or RM724.1m.

Tender pricing still palatable. We believe that the tender price of SGD355.3psf of allowable GFA won by SUNWAY is fair as we gathered that there is a plot of land near their development in Fernvale street, which is 1km away, has reached a tender bid of SGD489.8psf of allowable GFA representing 38% premium to SUNWAY’s tender bid.

Anchorvale Lane. SUNWAY’s development in Anchorvale Lane has a plot ratio of 3.0x for residential purpose (640 units of executive condos) with an estimated GDV of SGD520.0m translating an average selling price of SGD1,000psf, which is quite close to UOL Group Limited’s project pricing, i.e. Riverbank @ Fernvale. The project is slated for launch end of 2017 or beginning 2018 and we are expecting low-teens pre-tax margins from the project given that land cost already made up 46% of its GDV.

Outlook. We remain confident with SUNWAY’s ability in delivering solid performance for the year premised on its strong property unbilled sales of RM2.0b with 2-year visibility coupled with a robust outstanding order book of RM4.9b that provides 2-3 year visibility.

Earnings estimate. While we are mildly positive on the project as it would help lift SUNWAY’s sales in the future, we make no changes to our FY16-17E core earnings as the development is only expected to take off by late 2017 or early 2018, which does not have any impact to our current estimates. Net-gearing wise, the proposed land acquisition would bump up its net gearing by 0.03x to 0.47x from its 0.44x as of 2Q16.

MARKET PERFORM. We are keeping our MARKET PERFORM recommendation but marginally bumped up our Target Price to RM3.23 after we factored in the land acquisition in Singapore (previously, TP@RM3.22 based on SoP). Nonetheless, we are still maintaining our cautious view on the property market as we have yet to see much improvement in the market, especially with bank loan approvals.

Downside risks to our call include: Weaker-than-expected property sales and construction order book replenishment, Higherthan- expected sales and administrative costs, negative real estate policies, and tighter lending environment.

Source: Kenanga Research - 7 Sep 2016