Last week, SUNWAY along with its Singapore JV partners announced that they are acquiring 8.56 acres of 999-year lease land in Clementi, Singapore for a total consideration of SGD530.0m. Neutral on the acquisition as it has minimal impact to its property RNAV. No changes to our FY17-18E earnings. Maintain MARKET PERFORM with an unchanged SoP-driven RM1.75.

News. Last week, SUNWAY announced that their wholly-owned subsidiary Sunway Developments Pte Ltd (SDPL) has entered into a joint-venture (JV) with Hoi Hup Realty Pte Ltd (HoiHup) and S C Wong Pte Ltd (SCWong) at equity stake of 30%:60%:10%. The JV will be acquiring 8.56 acres of land in Clementi, Singapore i.e. Brookvale Park from the collective owners for a total consideration of SGD530.0m or SGD1,420.0psf, which is still cheaper compared to recent land sales by the Singapore government to private developers that ranges from SGD1,656.0 to 2,240.0psf on an open tender basis. We believe the premium could be due to a higher approved plot ratio for the land.

First land banking for the year. This would be SUNWAY’s first land banking activity for 2018. The land i.e. Brookvale Park is currently a 160-unit private residential estate with 999-year lease which will be redeveloped into a new private residential development with an allowed plot ratio of 1.6x, pending authorities’ approval. While there is no guidance from management regarding the potential GDV, we estimate it to range between SGD630.m and SGD806.0m based on the asking price range of SGD1,400-1,800psf for the Clementi Canopy. Given that the redevelopment for Brookvale is expected to have a lower density compared to Clementi Canopy (plot ratio of 3.5x), we believe that the pricing is expected to hover at the higher range of SGD1,800.0psf upon launch in 2019. As SUNWAY will only fork out SGD70.0m for its equity portion to fund the land acquisition, this deal has minimal impact to its balance sheet, bringing 3Q17 net gearing up from 0.37x to 0.40x.

Outlook. Moving ahead, we are confident that SUNWAY would be able to meet our forecast earnings and targeted sales of RM1.1b for the year. This is premised on its property unbilled sales of RM0.9b with 1.5- year visibility, a vigorous outstanding order-book of RM6.8b providing 2- 3 years visibility and other divisions that have been generating decent growth. As for its property sales, we are expecting a strong performance in 4Q17 given that most of its new local launches have achieved take-up rate of 50%, coupled with an unsold GDV of RM400.0m.

Earnings forecasts unchanged. We are keeping our FY17-18E core earnings, as the development is to be launched from FY19 onwards.

Maintain MARKET PERFORM. We are keeping our MARKET PERFORM call on SUNWAY with an unchanged SoP-driven TP of RM1.75 as we have already factored in a sizeable GDV replenishment of RM2.0b last year with RM800m remaining after its South Quay deal. Furthermore, we remain comfortable with our valuations as follows; (i) applied property RNAV discount of 56%, which is lower compared with sector average of 60%, (ii) pegging premium valuations of 27.0x Fwd. PER to its healthcare division, and (iii) 16.0x FY18E PER for construction division in line with our big-cap range of 16-18x.

Risks include: (i) weaker-than-expected property sales and construction replenishment, (ii) higher-than-expected administrative costs, (iii) negative real estate policies, and (iv) tighter lending environment.

Source: Kenanga Research - 19 Feb 2018