Sunway is acquiring land parcels and would make its maiden foray into the industrial property development segment. Maintain BUY with an unchanged MYR3.60 TP (22% upside). Although this segment is new, we are confident in this venture given the company’s long experience in the property industry, its established presence in Bandar Sunway/Subang areas, as well as the strategic location of the land parcels.

Buying land parcels in Kelana Jaya and Subang. Sunway made two announcements to acquire land parcels: i) 4.84 acres of freehold industrial land in Kelana Jaya, and ii) two parcels of land totalling 4.25 acres in Kampung Baru Subang. Prices are fair, given also that Kelana Jaya and Subang are areas that are familiar to the Sunway Group given its anchor presence in Bandar Sunway. Kelana Jaya land. The 4.84-acre land parcel costs MYR35.82m (or MYR169.95 psf). We believe management has yet to decide its development purpose, given the vast potential for this land parcel as it is located in the Sungei Way Free Industrial Zone and close to the 17-acre land (next to Western Digital) that Sunway bought last year. Land holding cost would be partly compensated by the MYR600,000 rental for a 9-month period that Sunway has agreed with the vendor, which is also the occupier of the land. Subang land. Sunway has also entered into an 80:20 joint venture (JV) with View2Pick SB, which is also the vendor for one of the two parcels. Both tracts of land will then be amalgamated with Sunway’s existing land in between, measuring 2.1 acres. Hence, this allows the JV company to have a total of 6.35 acres for more meaningful/sizeable industrial development with MYR110m GDV (45 units of terrace industrial units). That said, all three land parcels now have a leasehold tenure of <60 years, and hence the conditions precedent include state authorities for the amalgamation and extension of lease to 99 years.

A new market to Sunway. With the acquisitions, Sunway would now venture into the industrial segment. Although new, given its long track record in the property industry, we believe Sunway will unlikely disappoint. Furthermore, the location is strategic as it is surrounded by small and medium enterprises (SMEs) and near to Subang airport. Maintain BUY. Given the size of the development, the impact on our earnings and RNAV estimate is insignificant. We maintain our BUY rating and MYR3.60 TP, based on a 30% discount to RNAV. Although the property market should remain soft, Sunway’s strategic exposure to other business segments such as property investment and construction should help to mitigate downside risk and provide earnings visibility.

Financial Exhibits

SWOT Analysis

Source: RHB Research - 22 Feb 2016