INVESTMENT HIGHLIGHTS

• First land banking for 2019

• Neutral on the land award

• Marginally higher net gearing

• Earnings forecast maintained

• Maintain Neutral with a revised TP of RM1.50

First land banking for 2019. Sunway Berhad (SUNWAY) announced that the Housing and Development Board of Singapore has awarded a land parcel measuring approximately 6.16 acres at Tampines Avenue 10, Tampines, Singapore for a 99-year lease term Executive Condominium Housing Development at S$434m (RM1.32b) to Hoi Hup Realty Pte Ltd and Sunway Developments Pte Ltd. The Land will be acquired by a proposed new joint venture (JV) in which Hoi Hup Realty will hold 65% equity interest while Sunway will have equity interest of 35%.

Neutral on the land award. We are neutral on the land banking exercise as we expect minimal earnings impact in the near term from the land award. SUNWAY targets to launch project on the land in 1H2020 while development profits from the project will only be recognized upon its completion. Note that proposed development on the land is 700 units of Executive Condominium Housing Development with indicative GDV of more than SGD800m. Development period for the land is within 60 months from the award of land.

Marginally higher net gearing. SUNWAY’s cost of investment in the JV is S$65m or approximately RM198m. Net gearing of SUNWAY is expected to climb to 0.48x from 0.46x as of Sept 2018. Meanwhile, we maintain our earnings forecasts for FY18/19 as the project will only be launched in 2020.

Maintain Neutral with a revised TP of RM1.50. We revised our TP for SUNWAY to RM1.50 from RM1.48 after taking into consideration of RNAV contribution from Singapore land. Our TP is based on Sum-of-Parts valuation. We maintain our Neutral call on SUNWAY as we see its new sales outlook and earnings outlook to be tepid.

Source: MIDF Research - 24 Jan 2019