INVESTMENT HIGHLIGHTS

• Disposing education assets

• Neutral to slight positive on the disposal

• Improves balance sheet

• Earnings forecasts maintained

• Maintain Neutral with an unchanged TP of RM1.48

Disposing education assets. Sunway Berhad announced that its whollyowned subsidiary has entered into sales and purchase agreement for the disposal of lands and education buildings in Sunway City to Sunway REIT for a total cash consideration of RM550m. The disposal is expected to be completed in the first half of 2019.

Neutral to slight positive on the disposal. We are neutral to slight positive on the proposed disposal as it will allow Sunway Berhad to unlock the value of its investment properties. The proposed disposal entails the sale of three parcels of leasehold land, together with buildings that comprise three academic blocks, four blocks of hostel apartments and sports facilities. Sunway Berhad is expected to reap a disposal gain as the original cost of investment was RM382.8m.

Improves balance sheet. Sunway intends to use RM238.57m of the gross proceeds from the proposed disposal for repayment of borrowings. Net gearing of Sunway Berhad is expected to improve to 0.43x from 0.46x as of 3QFY18. Meanwhile, earnings impact from the proposed disposal is expected to be minimal. Sunway Berhad is expected to gain finance expenses saving of RM9.9m per annum which is equivalent to 1.6% of FY19 earnings. Nevertheless, we maintain our earnings forecasts for FY18/19 pending the completion of the disposal.

Maintain Neutral with an unchanged TP of RM1.48. We maintain our TP at RM1.48 based on Sum-of-Parts valuation. We maintain our Neutral call on Sunway Berhad as we see its new sales outlook and earnings outlook to be tepid.

Source: MIDF Research - 26 Dec 2018