INVESTMENT HIGHLIGHTS

• Full ownership of Sunway South Quay

• Positive on the acquisition

• Minimal impact on balance sheet

• Maintain Neutral with revised TP of RM1.84

Full ownership of Sunway South Quay. Sunway Berhad (SUNWAY) announced that it is acquiring the remaining 20% stake in Sunway South Quay from EPF, raising its stake in Sunway South Quay to 100%. The announcement is following the recent acquisition of 20% stake in Sunway South Quay by SUNWAY from Kuwait Finance House (Malaysia) Sdn Bhd on 10 October 2017. The purchase consideration of 20% stake from EPF is same with the previously announced acquisition at RM136.6m and SUNWAY will also repay on behalf of EPF a sum of RM73.4m in cash towards the settlement of “musysrakah” capital. 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 the full ownership of Sunway South Quay will increase future earnings contribution of the project to SUNWAY’s earnings. Sunway South Quay, a mixed development, is located in the integrated township of Sunway City with remaining GDV of RM3b. The increased stake in Sunway South Quay is also an affirmation of SUNWAY’s confidence and commitment to the long-term prospects of Sunway South Quay. Key upcoming projects of Sunway South Quay include Sunway Bayou (formerly known as Sunway GEO Residences 3), Sunway GEO Tower (commercial office tower) and Sunway GEO Avenue (retail).

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 0.37x from 0.32x as at end June 2017 after taking full ownership of Sunway South Quay. Likewise, earnings impact from the acquisition is also expected to be minimal, hence we maintain our earnings estimate for FY17-18F.

Maintain Neutral with a revised TP of RM1.84. Our TP has been revised from RM1.83 to RM1.84 after factoring full ownership of Sunway South Quay. Our TP is based on Sum-of-parts valuation. Maintain Neutral on SUNWAY.

Source: MIDF Research - 25 Oct 2017