Acquiring IIB’s 40% Stake in Sunway City Iskandar Puteri (Pendas)

Sunway Bhd’s wholly owned subsidiary, Sunway City Sdn Bhd (SunCity), has entered into a share transaction agreement with Iskandar Assets Sdn Bhd (IASB), a wholly owned subsidiary of Iskandar Investment Bhd (IIB), to acquire IASB’s entire 40% stake in Sunway Iskandar Development Sdn Bhd (SIDSB) for a total consideration of RM85mn.

This involves SunCity acquiring 40% of SIDSB's shares from IASB for RM770,450 and subscribing to RM84.2mn worth of NCRPS in SIDSB. The NCRPS proceeds will enable SIDSB to repurchase 76.3mn NCRPS from IASB for RM84.2mn, ultimately resulting in SunCity's full ownership of SIDSB. The acquisition, which will be financed with internally generated funds, is anticipated to be completed in the third quarter of 2023.

A Recap of Sunway City Iskandar Puteri (SCIP)

SCIP is Malaysia's third and largest Sunway City, encompassing 1,800 acres and a total GDV of RM30bn. Sunway owns 700 acres of leased land in Medini through a 60:40 joint venture with Khazanah. It has an additional 1,100 acres of freehold land in Pendas, Iskandar Malaysia, through a separate joint venture with IIB. Sunway holds an effective 60% share in this JV, with IIB holding the remaining 40% – see Appendix 1. Following the acquisition of shares and the NCRPS subscription, Sunway gains full control of the 1,100-acre Pendas land. Currently, SCIP’s completed and on-going projects are situated in Medini Iskandar, whereas the land in Pendas remains relatively undeveloped – see Appendix 2.

Our View

The purchase and subscription consideration was arrived at based on a willing buyer willing seller basis, after considering the market value of SIDSB's land determined by an independent valuation. This consideration is also deemed reasonable, given that it represents a premium of approximately RM7.3mn over 40% of SIDSB's net assets.

We are positive about the deal. With around 1,100 acres of remaining landbank at an estimated GDV of RM18bn within SCIP (Pendas), gaining full control over launch timing and product mix enhances the group's profitability potential. According to management, the upcoming development in Sunway City Iskandar Puteri will comprise two key precincts, Riverside and Capital, featuring a low plot ratio of 1:1.

Impact

We maintain our FY23-25 earnings forecasts as we anticipate minimal earnings impact from the acquisition in the near future.

Valuation

We maintain our Buy recommendation with an unchanged target price of RM2.27, based on SOP valuation.

Source: TA Research - 15 Aug 2023