Yesterday, SUNWAY announced that they have entered into a joint-venture (55:45) agreement with Huatland to acquire a parcel of freehold land measuring 4.34 acres in Wangsa Maju for a total consideration of RM51.1m with an estimated GDV of RM500.0m. Neutral on the acquisition as we have factored in RM2.0b worth of GDV replenishment to our estimated RNAV in our previous report. No changes to FY17-18E earnings. Maintain MARKET PERFORM with an unchanged SoP-driven Cum/Ex-TP of RM4.25/RM1.82.

News. Yesterday, SUNWAY entered into a joint-venture (55:45) agreement with Huatland to acquire a parcel of freehold land measuring 4.34acre in Wangsa Maju for a total consideration of RM51.1m or RM270.0psf from Setapak Heights Development Sdn Bhd.

Fifth land bank in a year. This marks the fifth land bank deal of the year for SUNWAY with an estimated GDV of RM500.0m. We are neutral on the acquisition having factoring in RM2.0b worth of GDV replenishment in our previous report. The land is located approximately 850m from the Sri Rampai LRT Station. The surrounding developments in the area are Wangsa 9 Residence by MITRA and Seri Riana Residence by IJM Land. The transacted cost of RM270.0psf is slightly higher compared to the surrounding asking price of RM250.0psf, but we reckon it is due to its freehold status versus leasehold land in the area. We opine that its acquisition price of RM51.1m as fair as it implies land cost to GDV of 10% based on management’s estimated GDV of RM500.0m. We believe that management’s estimated GDV of RM500.0m is reasonable as it implies a selling price of RM705.0psf which is still comparable to Wangsa 9 Residence’s current asking price of RM731.6psf.

Outlook. It has been a land banking year for SUNWAY, and we believe there could be more land banking deals in the pipeline despite the replenished GDV of RM5.5b and we also do not rule out further asset disposal. In terms of earnings delivery, we are confident that SUNWAY would be able to deliver 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 have been generating decent growth over the years. However, its weak 1Q17 sales of RM142.0m which is below our and management’s target of RM1.1b, remains a concern. In five years’ time, we expect management to consider the option of spinning off its medical division.

Earnings unchanged. There are no changes to our FY17-18E Core Net Profits as we have yet to factor in any potential contributions from the project, as it is only targeted for launch in end 2018.

MARKET PERFORM maintained. We maintain our MARKET PERFORM call on SUNWAY due to its unexciting sales trajectory with an unchanged SoP-driven Cum/Ex-TP of RM4.25/RM1.82 as we have previously factored RM2.0b worth of GDV replenishment assumptions. Post this land deal; we have a remaining GDV replenishment assumption of RM1.7b.

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

Source: Kenanga Research - 17 Aug 2017