KEY INVESTMENT HIGHLIGHTS

• Maiden healthcare expansion into the East Coast region
• Positive on the expansion
• Minimal impact on balance sheet
• Earnings forecast maintained
• Maintain BUY with an unchanged TP of RM1.61

Maiden healthcare expansion into the East Coast region. Sunway Berhad (SUNWAY) announced that Sunway Medical Centre Kota Bharu Sdn Bhd, a subsidiary of SUNWAY, has on 28 July 2020 entered into a Sale and Purchase Agreement with Liziz Standaco Sdn Bhd for the acquisition of a leasehold land measuring 3.811 hectares for a purchase consideration of RM28.7m. This is SUNWAY’s maiden healthcare expansion into the East Coast region of Malaysia. The acquisition is expected to be completed in 1H2021.

Positive on the expansion plan. We view the land acquisition positively as it allows SUNWAY to tap into locations where private healthcare is underserved. The proposed development on the land will comprise a 200-bed hospital with estimated total development cost of approximately RM200m. The proposed healthcare expansion to the East Coast region is in line with its strategy to expand its network of tertiary hospitals. The proposed acquisition also bodes well for the listing plan of its healthcare division.

Earnings forecast maintained. SUNWAY intends to fund the purchase consideration of RM28.7m by borrowings and internally generated funds. We expect muted impact on balance sheet from the proposed acquisition as SUNWAY has cash balance of RM5.9b as of 1QFY20. Meanwhile, we expect no earnings impact from the land acquisition in the near term as construction of hospital will take a few years to complete. Hence, we make no changes to our earnings forecast for FY20/21F.

Maintain BUY with an unchanged TP of RM1.61. We maintain our TP for SUNWAY at RM1.61, based on sum-of-parts valuation. We are positive on the long-term growth prospect of its healthcare division. The potential listing of healthcare division in the near to medium term would serve as a catalyst to SUNWAY. Hence, we maintain our BUY call on SUNWAY.

Source: MIDF Research - 29 Jul 2020