• Maintain BUY, with new MYR5.00 TP from MYR4.00, 22% upside. Sunway provides investors three strong catalytic exposures: i) Multi-year growth in Iskandar Malaysia; ii) listing of Sunway Healthcare Group (SHG) that may take place in early 2026; and iii) strong data centre (DC)-related job flows to Sunway Construction (SWCB MK, BUY, TP: MYR6.29) – currently makes up 50% of outstanding orderbook. As these factors and the group’s corporate exercise progressively show more visibility, the re-rating for Sunway is expected to continue.

• Aggressively expanding SHG in preparation for upcoming listing. Sunway is now accelerating the IPO for SHG. We think the listing may take place in early 2026. According to its organic growth plan, SHG is expected to have a total bed capacity of 2,000 in FY26 (FY24: 1,400). Management has also planned to bring forward its hospital development at Sunway Iskandar (with 300 beds) given the current robust demand for healthcare services. Recently, it was also reported that Sunway is bidding for Island Hospital in Penang. Depending on the valuation, we believe Island Hospital will provide a strategic synergy to SHG given the former’s strength in medical tourism. Based on our FY25F EBITDA and 20.1x EV/EBITDA, SHG could be worth an estimated value of MYR11.2bn.

• Recent DC land disposals to Equalbase to set new pricing benchmark. The MYR136 psf transaction price should set a new benchmark for land and properties at Sunway Iskandar and Nusajaya. The MYR8bn JV Free Commercial Zone logistics hub development with Equalbase, upcoming data centres and hospital nearby, as well as the Cheah Fah Chinese primary school and Sunway International School are expected to help create a positive spillover to demand for properties in Sunway Iskandar in the future.

• Sunway Iskandar sales gallery is very busy now. Footfall to Sunway Iskandar’s sales gallery has doubled from last year. The marketing team is now seeing increased foreign purchasers, especially during the weekend. Currently 10-20% of the buyers in Sunway Iskandar are foreigners while the balance 80-90% includes Malaysians working in Singapore. During our visit last month, we also learnt that property prices in Sunway Iskandar are rising, as the indicative psf pricing for the next launch is about 20-30% higher (different types of landed product). In the pipeline, Sunway plans to roll out Sakura Phase 2 and Maple (combined GDV MYR280m), and it may also bring forward the first launch at the Pendas land.

• Valuation. Given the stronger demand in Iskandar Malaysia, we now value the property division at 25% discount to RNAV (from 30%). We also remove our holding company discount as the IPO for SHG will be accelerated.

Source: RHB Research - 19 Jul 2024