INVESTMENT HIGHLIGHTS

• Accepts development rights for Kota Damansara land

• Slight positive on the land banking

• Muted impact on balance sheet

• Earnings forecasts maintained

• Maintain Neutral with a revised TP of RM1.56

Accepts development rights for Kota Damansara land. Sunway Berhad (SUNWAY) announced that its subsidiary Sunway PKNS Sdn Bhd (Sunway PKNS) has entered into a Privatisation Agreement with Perbadanan Kemajuan Negeri Selangor (PKNS) to accept the rights to develop a leasehold land measuring approximately 9.458 acres located in Kota Damansara. Note that PKNS holds 40% direct interest in Sunway PKNS.

Slight positive on the land banking. We are slight positive on the land banking exercise, as the land is strategically located in matured neighbourhood of Kota Damansara. Nevertheless, we expect minimal earnings impact from the landbanking exercise in the near term. Development period for the land is 5 years and target completion date is in year 2025. Hence, we expect minimal impact to FY19/20 earnings. Proposed development on the land is 825 units of serviced apartment with some lifestyle retail units. Estimated GDV for the proposed development is RM544m.

Muted impact on balance sheet. Pursuant to the Privatisation Agreement, Sunway PKNS shall pay rights value of RM36.6m to PKNS over a 2.5 years deferred payment schedule. We expect the deferred payment schedule to have muted impact on SUNWAY’s balance sheet considering cash pile of RM5.9b as of 1QFY19. Besides, PKNS is entitled to (i) RM50m revenue sharing or a sum equivalent to 8.88% of the gross sales value of the development, and (ii) estimated profit before tax of RM38m for 40% stake in Sunway PKNS.

Maintain Neutral with a revised TP of RM1.56. We make no changes to our earnings forecasts for FY19/20. We revise our TP for SUNWAY to RM1.56 from RM1.55 after taking into consideration of RNAV contribution from the Kota Damansara land. Meanwhile, we maintain our Neutral call on SUNWAY due to limited near-term upside.

Source: MIDF Research - 2 Jul 2019