INVESTMENT HIGHLIGHTS

• Raising stake in Sunway South Quay

• Positive on the acquisition

• Minimal impact on balance sheet

• Maintain Neutral with revised TP of RM1.83

Raising stake in Sunway South Quay. Sunway Berhad (SUNWAY) announced that it is raising its stake in Sunway South Quay from 60% to 80%, by acquiring 50,000 ordinary shares held by Kuwait Finance House (Malaysia) Sdn Bhd (KFH) in Sunway South Quay Sdn Bhd (SSQ) at a purchase consideration of RM136.6m. Sunway will also repay, on behalf of SSQ, a sum of RM73.4m in cash towards the settlement of “musyarakah” capital invested by KFH in SSQ. The proposed acquisition is expected to be completed in the last quarter of 2017.

Positive on the acquisition. We are positive on the acquisition, as it will lead to higher future earnings of SUNWAY following higher ownership of SUNWAY in Sunway South Quay. Note that SSQ is primarily involved in the development of Sunway South Quay which is a mixed development located in the integrated township of Sunway City with remaining GDV of RM3b. Launches of project in Sunway South Quay for FY17 include Sunway Geo Residences 3 with GDV of RM400m.

Minimal impact on balance sheet. SUNWAY intends to fund the acquisition via bank borrowings and internally generated funds. Impact on balance sheet from the acquisition is expected to be minimal. We estimate net gearing of SUNWAY to be lifted marginally to 0.35x from 0.32x as at end June 2017. Meanwhile, earnings impact from the acquisition is expected to be minimal, hence we maintain our earnings estimate for FY17-18F.

Maintain Neutral with a revised TP of RM1.83. Our TP has been revised from RM1.81 to RM1.83 after factoring in higher stake in Sunway South Quay and also update our valuation on Sunway REIT to reflect the latest target price for Sunway REIT. Our TP is based on Sum-of-parts valuation. Maintain Neutral on SUNWAY due to its neutral sales outlook.

Source: MIDF Research - 11 Oct 2017