• Acquires land in Kajang and USJ 1

• Redevelopment potential of industrial lots in USJ 1

• Transit-oriented development on Kajang land

• Marginal impact on net gearing

• Maintain Neutral with a revised TP of RM4.25

Acquires land in Kajang and USJ 1. Sunway Berhad (SUNWAY) announced the acquisition of 4 parcels of freehold land totalling approximately 14.8 acres in USJ 1 for a total purchase consideration of RM168m. Moreover, SUNWAY also announced the acquisition of approximately 5.3 acres of freehold land in Kajang for RM63m. The acquisitions are estimated to complete by February 2018.

Redevelopment potential of industrial lots in USJ 1. In the interim, SUNWAY intends to use the 4 parcels of industrial lots in USJ 1 as warehouses and storage facilities for its trading and manufacturing business. Nevertheless, SUNWAY sees future redevelopment opportunity on the land as the land is strategically located only 500 meters from Da Men Mall and Summit USJ. Besides, the land is also located only 600 meters from South Quay BRT station. The land is ideal for redevelopment into mixed-use development with estimated GDV of RM1.4b. We are positive on the land acquisition as it is expected to serve as an extension to its Sunway City township given the close proximity of the land to Sunway City.

Transit-oriented development on Kajang land. On its land acquisition in Kajang, it comprises a semi-completed commercial development that was discontinued by the previous developer. We are positive on the land acquisition as SUNWAY intends to complete the semi-completed structure but will replace the original development plan with a proposed transit-oriented development due to its immediate proximity to Sg Jernih MRT Station. The proposed mixed-development comprises a retail podium/commercial lots, and serviced apartments/SOHO with indicative GDV of RM460m.

Marginal impact on net gearing. SUNWAY intends to fund the acquisitions via internally generated funds and borrowings. We estimate the net gearing of SUNWAY to be lifted marginally to 0.5x post acquisitions from a net gearing of 0.47x as of 1QFY17. Meanwhile, we expect no immediate earnings impact from the land acquisitions as we estimate launches for transit-oriented development in Kajang to take place soonest in FY18.

Maintain Neutral with a revised TP of RM4.25. We left our earnings forecasts for FY17-18 unchanged as we expect earnings contribution from the proposed development to kick in from FY19 onwards. Meanwhile, we revised our SOP-based TP for SUNWAY upward to RM4.25 from RM3.82 after taking into account the NPV from the proposed development and update the valuation of other divisions to reflect latest sector PER.

Source: MIDF Research - 2 Aug 2017