SUNSURIA has proposed another placement of up to 10%, with the issue price to be determined later, potentially raising RM52m to be utilised for working capital. We are not thrilled with this news given the lack of earnings accretion amidst potential dilution to share base. Maintain FY19-20E CNP pending details of the placement quantum and price. Maintain OP but on a lower TP of RM0.760 (from RM0.835) on a wider RNAV discount.

Another placement of up to 10% proposed. SUNSURIA yesterday proposed to undertake a private placement of up to 10% while the issue price will be determined later. Based on an indicative issue price of RM0.600 and 86m shares (10% of existing share base), SUNSURIA could potentially raise up to RM52m. At this juncture, we seek further clarity from management pending the finalised quantum and issue price of the placement which is expected to be completed by 3QCY19 depending on interest from potential placees. The placement proceeds are expected to be utilised for working capital purposes for existing projects, namely Sunsuria City development and Forum 2. Recall that SUNSURIA recently placed out 65m new shares (which were listed on the market on 8th April 2019), representing 8% of its share base at RM0.655 to Ter Capital Sdn. Bhd (TCSB) raising RM43m, also meant for working capital.

Concerned on the potential dilution. We were surprised given a recent placement, and are negative on this news considering that there is no new earnings driver as the proceeds will be utilised for working cap even though the company has a light balance sheet of 0.14x currently. We would have preferred that they gear up for working capital needs over a cash-call exercise which would further dilute its earning per share. Assuming that they can fully place out the 86m shares, its FY19- 20E EPS would decrease by 9% each to 9.5-12.0 sen, while we expect FD SoP RNAV to decline to RM2.20 (from RM2.34). Nonetheless, if the cash-call is meant to increase its war-chest for land-banking activities, this may not be negative.

Outlook. Upcoming launches will mostly cater to the affordable high-rise or mid-market landed residentials, priced mostly below RM800k/unit from Sunsuria City. We maintain our FY19-20E sales target of RM0.40- 0.40b.

Maintain FY19-20E CNP of RM90.4-114.3m pending the quantum and pricing of the proposed placement which is yet to be determined. Assuming there is no placee for the placement by 3QCY19, the Group has the option to extend the mandate till the next AGM in March 2020.

Maintain OUTPERFORM but on a lower Target Price of RM0.760 (from RM0.835) as we widen our property RNAV discount to 75% (from 71%) implying a higher SoP discount of 68% (from 64%) on an unchanged FD SoP RNAV of RM2.34. Our discount is now pegged to - 1.25SD levels vs. -1.0SD previously to account for the potential EPS dilution arising from the placement. However, we are comfortable with our call on SUNSURIA as we have priced in most foreseeable risks for now while our TP implies a FY19E PER of 7.3x, which is below smallmid-cap peers’ average of 8.7x Fwd. PER. We would look to upgrade our valuations should the placement prove not as dilutive as expected or result in EPS improvements going forward.

Risks include; (i) weaker-than-expected property sales, (ii) higher thanexpected sales/administrative and finance costs (i.e. margin fluctuations), (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 11 Apr 2019