Yesterday, SUNWAY announced that their joint-venture (35:65) with HOIHUP have won a land tender measuring 4.46 acre (SGD271.0m) from the Singapore Housing Development Board for the development of an executive condo in Sembawang. Neutral on the land bank replenishment as it has minimal impact to its property RNAV. No changes to FY18-19E earnings. Maintain MP with an unchanged SoP-driven TP of RM1.55.

News. Yesterday, SUNWAY announced that their joint-venture with partner Hoi Hup Realty Pte Ltd (HOIHUP), was awarded a land parcel measuring approximately 4.46 acres at Canberra Link (Lot 4018N, MK19), Sembawang, Singapore for a 99-year lease term for Executive Condominium Housing Development at SGD271.0m or RM817.2m. The tender bid of SGD271.0m represents a 4.7% premium compared to the second highest bidder.

Second land bank replenishment in Singapore. This marks the second land bank replenishment in 2018 after Brookvale Park in Feb- 2018. We laud SUNWAY for its land banking activity in Singapore as they are one of the few developers in town that is land banking instead of selling land as seen in other developers weathering the weak property sentiment in Malaysia. The land in Sembawang with a plot ratio of 2.5x is earmarked for the development of an executive condo (c.500 units) with an estimated GDV of SGD500.0m and management is only targeting to launch in 2020. We are relatively comfortable with SUNWAY’s move in Singapore as most of their new projects are executive condos, which demand appears to be more resilient as it falls under the HDB scheme. Based on its effective stake of 35%, SUNWAY is only required to fork out SGD94.9m to fund the above-mentioned acquisition and its net gearing is expected to inch up to 0.51x from 0.48x (as of 2Q18) which is still within our comfortable levels of 0.5- 0.6x. Historically, the highest level that SUNWAY had geared up was 0.57x in 2012 and we are not too worried with its balance sheet as they could easily de-gear by injecting some of its matured investment assets into SUNREIT.

Outlook. We believe SUNWAY is on-track to meet management and our sales target of RM1.3b and RM1.4b, respectively, due to the encouraging take-up rates in both local and overseas project. To recap, its Singapore project i.e. Rivercove received full take-up upon its launching in April 2018, while its local project, i.e. Geolake and Citrine Lakehomes’ sales and bookings are currently at 60-70%. Property unbilled sales of RM1.5b with 1-year visibility and a vigorous outstanding order-book of RM5.8b provide 2-3 years’ visibility.

No changes in earnings. There are no changes to our FY18-19E earnings, as the launch of the project will only take place earliest by 2020, and we only expect contribution to kick in by 2022/2023 as they can only recognise the profit upon completion of the project.

Maintain MARKET PERFORM. We reiterate our MP call with no changes to our SoP-driven TP of RM1.55 as the impact from the land bank replenishment is seen to be minimal. Currently, we are comfortable with our valuation parameters as follow; (i) applied property RNAV discount of 64% that is close to the sector average of 68%, (ii) premium valuation of 25.0x Fwd. PER for its healthcare division, and (iii) 12.0x FY19E PER for its construction division, which is in line with our big-caps’ range of 12-14x.

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 - 13 Sep 2018