INVESTMENT HIGHLIGHTS

• Disposing 30% equity stake in Hoi Hup Sunway Novena Pte Ltd

• Neutral on the disposal

• Lower net gearing

• Earnings estimates maintained

• Maintain Neutral with an unchanged TP of RM1.60

Disposing 30% equity stake in Hoi Hup Sunway Novena Pte Ltd. Sunway Berhad (SUNWAY) announced that its wholly-owned subsidiary had on 26th June 2018 had entered into a Sale and Purchase Agreement with Hoi Hup Realty Pte Ltd (Hoi Hup) for the purpose of disposing its entire 30% equity stake in Hoi Hup Sunway Novena Pte Ltd (HHSN), for a cash consideration of SGD39.88m (equivalent to approximately RM118.2m). The proposed disposal is expected to be completed by 30th June 2018.

Neutral on the disposal. HHSN was incorporated in December 2012 to undertake the development of land awarded by the Urban Redevelopment Authority of Singapore. The project developed by HHSN was named Royal Square at Novena, comprising a hotel, medical and retail units. The project was completed in July 2017. Hotel was kept as investment property while 70% of the medical and retail units have been sold. The proposed disposal will enable SUNWAY to monetise its investment in HHSN. Nevertheless, SUNWAY is expected to record estimated disposal loss of SGD0.1m after taking into consideration of the latest net book value as at 31 March 2018.

Lower net gearing. The proceeds from the disposal is expected to reduce SUNWAY’s net gearing to 0.4x from 0.42x as of 1QFY18. The proceeds from the disposal is expected to be used for working capital and new land bank acquisitions. Meanwhile, earnings impact from the disposal is limited as the disposal loss of SGD0.1m is less than 1% of our FY18 earnings forecast of RM605.8m. Hence, we make no changes to our earnings forecast.

Maintain Neutral with an unchanged TP of RM1.60. We maintain our Neutral call on SUNWAY with unchanged TP of RM1.60, based on Sum-of-Parts valuation. New property sales outlook for SUNWAY remains stable as management is targeting to chalk up new sales of RM1.3b in FY18 (FY17 new sales: RM1.2b) on the back of target launch with GDV of RM2b.

Source: MIDF Research - 27 Jun 2018