• First land banking exercise for 2017

• Synergies with Sunway Velocity

• GDV of RM2.0b

• Marginal impact on net gearing

• Maintain Neutral with a revised TP of RM3.27

First land banking exercise for 2017. Sunway Berhad (SUNWAY) wholly owned subsidiary Sunway City Sdn Bhd (SunCity) has entered into a subscription and shareholders’ agreement with Low Peng Kiat (LPK), CRSC Property Sdn Bhd (CRSC), and Austral Meridian Property Sdn Bhd (AMP). SunCity will subscribe for 50% + 1 share of shareholding in AMP for total consideration of RM500, 001 while LPK and CRSC will hold 40% and 10% stake in AMP respectively. SunCity has also entered into a Put Option Agreement to purchase 20% of the enlarged paid-up capital of AMP for a total option price of RM182.7m 4 years and 8 years after SunCity’s entry. Implied valuation is RM886 per sq ft. A JV will be established via AMP to jointly undertake an integrated development project on 8.45 acres of leasehold land in Jalan Peel, Kuala Lumpur.

Synergies with Sunway Velocity. The proposed JV will enable SUNWAY to gain an additional 8.45 acres of land bank in Kuala Lumpur. The new 8.45 acres of prime land bank is located directly opposite Sunway Velocity development. The proposed development is expected to be synergistic with Sunway Velocity as linkways between Sunway Velocity and the proposed development will be proposed.

GDV of RM2.0b. The proposed development on the land will comprise mainly residential components in addition to office towers and retail shops with estimated GDV at approximately RM2.0b.

Marginal impact on net gearing. SunCity will provide an advance of up to RM140m to settle the liabilities of AMP. SUNWAY intends to fund the advance and acquisition via internally generated funds and/or borrowings. We estimate net gearing of SUNWAY to be lifted marginally to 0.39x post acquisition from net gearing of 0.38x as of 3QFY16. Meanwhile, immediate earnings impact from the land banking exercise is limited as target launch for the proposed development will be on 1H2018.

Maintain Neutral with a revised TP of RM3.27. We left our earnings forecast for FY16-18 unchanged as we expect earnings contribution from the proposed development to kick in from FY19 onwards. Meanwhile, we revised our TP for SUNWAY upwards marginally to RM3.27 from RM3.25, based on Sum-of-Parts valuation, after taking into account the NPV from the proposed development.

Source: MIDF Research - 13 Feb 2017