We are positive with SUNWAY’s land tender win in Tianjin, China for RMB438.0m as they continue their diversification effort from the local development scene. However, no change in FY19-20E earnings as the launch is scheduled for 1H20. Maintain MARKET PERFORM with an unchanged SoP-driven Target Price of RM1.60 even after factoring the replenishment into our RNAV.

News. Yesterday, SUNWAY announced that their 60%-owned joint venture in Singapore has won a tender to acquire from Sino-Singapore Tianjin Eco-City Investment and Development Co. Ltd a parcel of land measuring 6.85 acres in Tianjin, China for a total consideration of RMB438.0m or c.RM257.8m.Based on their indicative GDV of RMB1.3b, we deem the purchase consideration to be fair as it represents land cost to GDV ratio of 31%, which is not untypical for China projects.

Positive move. We are positive with SUNWAY’s continuous effort in replenishing its land bank overseas albeit only holding an effective stake of 60%, due to the sluggishness in the local development scene. The replenishment will boost its total GDV from RM56.8b to c.RM57.6b, and we believe that they are able to maintain their net gearing at healthy levels of below 0.5x, as the acquisition would only inch up its net gearing from 0.36x (as of 2Q19) to 0.39x.

Outlook. Its current unbilled sales stand at RM2.7b providing them at least 2-year visibility. That said, management is looking to launch RM2.0b worth of projects of which 50% are in Singapore. We believe our FY19E sales target of RM1.3b is achievable. We also do not rule out further land banking activities for the year. As for its construction division, it has an outstanding order-book of RM5.8b, which is sufficient for 3- year’s visibility.

No changes in earnings. We make no changes to our FY19-20E earnings, as the project is scheduled for launch in 1H20.

Maintain MARKET PERFORM, with unchanged Target Price of RM1.60. Currently, we are comfortable with our valuations as follows; (i) applied property RNAV discount of 64% that is close to the sector average of 72% after including the GDV for the newly acquired land into our RNAV, (ii) premium valuation of 25.0x Fwd. PER to its healthcare division, and (iii) 11.0x FY20E PER to its construction division, highest multiple ascribed for the construction sector. Our TP implies FY20E PER of 11.9x, which is above our contractors’ ascribed multiple of 11.0x, but below our developers’ average of 15.1x.

Upside risks to our call 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 - 13 Sept 2019