INVESTMENT HIGHLIGHTS

• Acquiring completed residential units of Residensi Infiniti 3

• Neutral on the acquisition

• Minimal impact on balance sheet

• Earnings estimates maintained

• Maintain Neutral with an unchanged TP of RM1.60

Acquiring completed residential units of Residensi Infiniti 3. Sunway Berhad (SUNWAY) announced that its subsidiary has entered into a Master Sale and Purchase Agreement with Setapak Heights Development Sdn Bhd for the acquisition of 47 completed residential units (build up area: 2,266 sf) of Residensi Infiniti 3 for a total purchase consideration of RM45.8m. Residensi Infiniti 3 is located in Wangsa Maju and it was developed by Setapak Heights.

Neutral on the acquisition. The acquisition cost of RM430psf is below current selling price of between RM550psf to RM600 psf. SUNWAY intends to resell the properties to end purchasers at a profit, leveraging on strength of its sales and marketing team. We are neutral on the acquisition as profit contribution from the acquisition (assuming residential units resold at RM550psf) is expected to be minimal, estimated at below RM12m or equivalent to less than 2% of our FY18 net profit forecast for SUNWAY group. Meanwhile, the resell of the said properties is not expected to cannibalise SUNWAY’s upcoming launches in Wangsa Maju as new project of SUNWAY in Wangsa Maju does not consist large sized units as the said properties.

Minimal impact on balance sheet. The proposed acquisition will be funded through internally generated funds. Impact on balance sheet of SUNWAY is expected to be minimal considering current cash pile of RM4.5b while Setapak Heights has granted favourable payment terms where payment of 90% balance will be deferred equally to the 12th and 18th month from the date of SPA signed.

Maintain Neutral with an unchanged TP of RM1.60. We maintain our earnings forecast for FY18/19 as contribution from the acquisition is expected to be minimal. Our TP is based on Sum-of-Parts valuation. We maintain our Neutral recommendation on SUNWAY due to its neutral earnings outlook for property development division.

Source: MIDF Research - 28 May 2018