We are positive with SUNWAY’s land tender win in Tampines, Singapore for SGD434.5m, especially in the Executive Condo space where demand is resilient. However, no change in FY18-19E earnings as launch is scheduled for 1H20. Downgrade to MARKET PERFORM (previously, OUTPERFORM) with an unchanged SoP-driven Target Price of RM1.50 even after factoring the replenishment into our RNAV.

News. Yesterday, SUNWAY announced that their 35% joint-venture in Singapore has received a letter of award for the tender of the land parcel (6.16 acres) at Tampines, Singapore from the Housing & Development Board (HDB) for a purchase consideration of SGD434.5m. Based on their indicative GDV of SGD800.0, the price is deemed fair as it represents land cost to GDV ratio of 54% which is typical for Singapore projects.

Positive move. We are positive with SUNWAY’s continuous effort in replenishing its landbank in Singapore albeit only holding an effective stake of 35% (remaining stake of 65% held by Hoi Hup Realty), especially in the executive condominium scene as the demand in this sub-segment remains resilient in Singapore due to the potential of being converted from HDB to private condo status. Based on our back- of-the envelope calculations, they would need to price the product at an average selling price of SGD1,400psf to achieve an estimated GDV of SGD800.0m, which we believe is still palatable as private apartments in Tampines are priced at that range of between SGD1,300-1,400psf. This replenishment would boost its total GDV from RM54.4b to RM56.8b, and we believe that they should be able to maintain their net gearing at 0.45x level given the recent disposal of its education asset. Furthermore, the land acquisition is at an associate level implying that the impact would be off-balance sheet.

Outlook. Moving into FY19, management is planning to launch RM2.0b worth of products of which RM1.0b is from Singapore and also intends to achieve sales of RM1.3b. The launches comprise Sunway Velocity Phase 2 (GDV: RM300.0m), Sunway Avila (GDV: RM230.0m), Sunway Geolake Townhouse (GDV: RM100.0m), Sunway Onsen Suites (GDV: RM120.0m), Sunway CitrineLakehomes (GDV: RM100.0m) Sunway Lenang Heights (GDV: RM150.0m) and Brookvale, Singapore (GDV: RM1.0b). Property unbilled sales of RM2.1b with 1-year visibility and a vigorous outstanding order-book of c.RM5.6b provide 2-3 years’ visibility.

No changes in earnings. We make no changes to our FY18-19E earnings, as the project is scheduled for launch in 1H20.

Downgrade to MARKET PERFORM, with unchanged Target Price of RM1.50. We are downgrading SUNWAY from OUTPERFORM to MARKET PERFORM given the recent run-up in share prices, while keeping our Target Price of RM1.50 unchanged as the replenishment has minimal impact to our RNAV estimate. Currently, we are comfortable with our valuations as follows; (i) applied property RNAV discount of 64% that is close to the sector average of 68%, (ii) premium valuation of 25.0x Fwd. PER on its healthcare division, and (iii) 11.0x FY19E PER on its construction division, the highest multiple ascribed for the construction sector.

Risks include: higher-than-expected property sales and construction replenishment, lower-than-expected administrative costs, positive real estate policies, and encouraging lending environment.

Source: Kenanga Research - 24 Jan 2019