• Bonus issue of shares and warrants
• We are positive on the news
• Reclassification of sector to Trading/Services sector
• Maintain Neutral with a revised TP of RM3.64

Bonus issue of shares and warrants. Sunway Berhad (SUNWAY) proposed to undertake bonus issue of shares on the basis of four (4) bonus shares for every three (3) existing SUNWAY shares. SUNWAY has also proposed to undertake bonus issue of warrants on the basis of three (3) warrants for every then (10) existing SUNWAY shares. The proposed bonus issue of shares and warrants are expected to be completed by 2HCY2017.

We are positive on the news as the bonus issue is expected to enhance the trading liquidity of SUNWAY. Upon completion of the bonus issue of shares, enlarged issued share capital will be boosted by 135% to 4.9bil shares from 2.07bil shares. Meanwhile, exercise price for warrants will be determined at a later date while structure of warrants pricing has been determined on an annual step-down basis where exercise price will be reduced by a fixed amount per annum. The objective of incorporating the step-down pricing mechanism is to encourage long-term holding of warrant holders.

Reclassification of sector. SUNWAY will be reclassified from Properties sector to Trading/Services sector with effect from 16th June 2017. We understand that the reclassification of sector was due to SUNWAY’s long term strategy in expanding its trading/services divisions namely healthcare and education businesses aside from growing its property development business. Notably, SUNWAY has four medical centres in the pipeline namely Sunway Medical Centre Velocity, Sunway Medical Centre Seberang Jaya, Sunway Medical Centre Ipoh, and Sunway Medical Centre Damansara which will add 1,090 beds by year 2020.

Maintain Neutral a revised TP of RM3.64. We maintain our earnings forecast for FY17/18 as we expect no earnings impact from the proposed bonus issue. We revise higher our TP for SUNWAY to RM3.64 (from RM3.46) after narrowing discount of property division to 20% from 35% in our Sumof-Parts valuation in view of better trading liquidity of SUNWAY. Our ex-bonus TP is RM1.54. While we are positive on the proposed bonus issues, we opine that it’s impact has been mostly priced in as share price of SUNWAY gained 19% in the past three months. Hence, we maintain our Neutral recommendation

Source: MIDF Research - 15 Jun 2017