Yesterday, SUNWAY announced that they would be acquiring 4.53acres of freehold land in Jalan Belfield, KL for a total consideration of RM165.0m with an estimated GDV of RM1.1b. Neutral on the acquisition as it has minimal impact to our property RNAV. No changes to our FY17-18E earnings. Maintain MARKET PERFORM with an unchanged SoP-driven Cum/Ex-TP of RM3.87/RM1.66.

News. Yesterday, SUNWAY announced that they would be acquiring a parcel of freehold land measuring 4.53 acres in Jalan Belfield, Kuala Lumpur for a total consideration of RM165.0m or RM836.2psf from LGT Sdn Bhd and its beneficial owners namely Tan Sri Lim Kok Thay, Puan Sri Datin Seri Lim (Nee Lee) Kim Hua, Yarraville Sdn Bhd, Dandenong Sdn Bhd and Ripponlea Sdn Bhd.

Second for the year. This marks the second landbank deal of the year for SUNWAY, which we are not surprised as management has been constantly on the lookout for landbanks especially in the Klang Valley region. The land is located less than 500m from Maharajalela monorail station and just 850m away from Kg. Attap’s famous curry fish head restaurant, i.e. Restoran ZK. While there is not much land transaction to be compared in that area, we opine that its acquisition price of RM165.0m or RM836.2psf to be fair as it implies land cost to GDV of 15% based on management’s estimated GDV of RM1.1b. We believe that management’s estimated GDV of RM1.1b to be fair as it implies a selling price of RM844.6psf which is still lower than its neighboring project, i.e. Opus @ KL that is priced at RM1,500psf.

Outlook. We remain confident with SUNWAY’s ability in delivering a sturdy performance for the year premised on its strong unbilled sales of RM1.4b with 2-year visibility, a robust outstanding order book of RM4.6b that provides 2-3 year visibility and other divisions that has been generating decent growth over the years. However, we are keeping a close track on its sales underpinned by its RM2.0b new launches in 2H17, as its 1Q17 sales of RM142.0m are still below our and management’s target of RM1.1b. In five years’ time, we expect management to consider the option of spinning off its medical division.

Earnings unchanged. We are keeping our FY17-18E core earnings as we did not factor in the potential earnings contribution from this particular project as it is only slated to be launched from 2H18 onwards.

MARKET PERFORM. We continue to maintain our MARKET PERFORM call on SUNWAY due to its unexciting sales trajectory, and there are no changes to our SoP-driven Cum/Ex-TP of RM3.87/RM1.66 even after factoring in the above-mentioned land acquisition as it has minimal impact to its RNAV.

Downside risks include: Weaker-than-expected property sales and construction replenishment, higher than expected admin costs, negative real estate policies, and tighter lending environment.

Source: Kenanga Research - 14 Jul 2017