• Acquiring land in Wangsa Maju

• Positive on the land acquisition

• Limited impact on net gearing

• Maintain Neutral with a revised TP of RM4.26

Acquiring land in Wangsa Maju. Sunway Berhad (SUNWAY) announced that it has entered into a Sale and Purchase Agreement to acquire 4.34 acres of freehold land in Wangsa Maju for RM51m. In addition, SUNWAY has entered into a joint venture agreement with Huatland Development Sdn Bhd to develop the land whereby SUNWAY will hold 55% of the JV company. The acquisition is expected to complete by end of 2017.

Positive on the land acquisition. We are positive on the land acquisition due to the strategic location of the land and the planned affordable property segment on the land. The land is located within 850 meters from the Sri Rampai LRT station in Wangsa Maju. The land is also located within 1.5km to amenities like Wangsa Walk Mall and Aeon Big Wangsa Maju. SUNWAY is planning a mixed development comprising serviced apartments and lifestyle retail units on the land with indicative GDV of RM500m. It translates into commendable land cost to GDV ratio of 10%. Meanwhile, we expect the affordable price range of the residential units, which are expected to sell at average pricing of RM550k to underpin good take-up rate of the project upon launching in end of 2018. Meanwhile, we view the acquisition price of RM270psf as fair as it falls within the asking price of RM165psf-RM330psf for land in Wangsa Maju.

Limited impact on net gearing. SUNWAY intends to fund the acquisition via internally generated funds and borrowings. Funding is not an issue to SUNWAY considering its cash pile of RM4b as at 1QFY17. We estimate net gearing of SUNWAY to be lifted marginally to 0.48x post acquisition from net gearing of 0.47x as of 1QFY17. Meanwhile, immediate earnings impact from the land acquisition is limited as target launch for the proposed development will be in 2H2018.

Maintain Neutral with a revised TP of RM4.26. We left our earnings forecast for FY17-18 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 RM4.26 from RM4.25 after taking into account the NPV from the proposed development. Our TP is based on Sum-of-Parts valuation.

Source: MIDF Research - 17 Aug 2017