We  maintain  our  BUY  rating  and  MYR3.90  TP  (17.8%  upside).  With  its latest  proposed  disposal  of  Sunway  Hotel  Georgetown  and  Wisma Sunway,  although  the  amount  is  small,  we  are  upbeat  about  Sunway’s continuous  effort  in  unlocking  its  asset  values.  Impact  on  earnings  is minimal as the loss of income will be offset by lower interest cost and depreciation, as well as the REIT management fees and dividend.

Asset  disposal.  Sunway  announced  its  proposed  disposal  of  Sunway Hotel  Georgetown  (MYR74m)  and  Wisma  Sunway  (MYR60m),  worth  a combined value of MYR134m, to Sunway REIT (SREIT MK, NEUTRAL, TP:  MYR1.55). While  the  4-star  hotel  has  250  rooms,  the  office  has  an NLA of 172,000 sqf. The disposal will likely be completed in late 2Q15.  

Net gain of MYR23.4m. According to the announcement, the disposal is estimated  to  yield  a  net  gain  of  MYR23.4m  (or  1.4 sen  per  share).  The bulk of the proceeds will be retained for working capital (MYR89m) and the balance MYR45m will be used to repay bank borrowings.  

Forecast. We make no changes to our earnings forecasts. The impact of the  disposals  is  minimal,  as  Sunway  Hotel  Georgetown  and  Wisma Sunway  have  an  annualised  EBITDA  of  MYR4.4m  and  MYR4m respectively,  about  1-2%  of  the  bottomline  on  a  net  basis.  While  rental expenses  will  be  incurred  under  the  Master  Lease  Agreement  for  the hotel,  this  will  be  offset  by  lower  depreciation,  and  Sunway  will  benefit from  interest  cost  savings  from  repayment  of  borrowings,  REIT management fees and income from REIT dividends via its 34.6% stake.  

Maintain  BUY.  The  impact  to  our  RNAV  estimate  is  negligible.  We maintain  our  BUY  rating  and  MYR3.90  TP  for  the  stock.  The  net  gain from  the  disposal,  albeit  minimal,  will  nonetheless  add  to  the  dividend pool.  We  continue  to  like  Sunway  for  its  value-unlocking  effort  and business  structure  that  allows  asset  recycling,  which  should  benefit shareholders.  We  re-iterate  that  the  dividend  angle  is  attractive  at  this level. With the listing of Sunway Construction Group Bhd, cash dividend plus  dividend-in-specie  could  amount  to  about  40  sen,  on  top  of  the normal single-tier dividend of 10 sen.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

A  well-known  developer  in  the  Klang  Valley.  Its  flagship  project  -  Bandar  Sunway  is  a  well-established  integrated  township.  The company has successfully transformed a mining land into a mature residential and commercial cluster.

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Source: RHB