Sunway Bhd
(July 14, RM3.96)
Maintain neutral with a revised target
price (TP) of RM3.82:
Sunway Bhd announced that it has
entered into a sale and purchase agreement to acquire 4.53 acres (1.83ha) of
freehold land along Jalan Belfield, Kuala Lumpur, for RM165 million. The expected
completion date is in the second half of 2017 (2H17).
We view the land acquisition positively
as it improves the company’s sales outlook for financial year 2018 (FY18). The
land will be acquired with approvals obtained for a mixed-use development with
a plot ratio of 8.81 times, indicating projects on the land will be readily launched.
Proposed development on the land
will be primarily serviced apartments with some lifestyle retail units.
The estimated gross development value
(GDV) of the proposed development is at approximately RM1.1 billion,
translating into a land cost to GDV ratio of 15% which is within the industry
average.
Meanwhile, the acquisition price of
RM836 per sq ft (psf ) is higher than the price of RM485psf that Tradewinds
Corp Bhd paid for the Jalan Belfield land in 2015 which could be due to the
strategic location of the land. The land is located less than 500m from the Maharajalela
monorail station, hence we expect the good connectivity to underpin good takeup
rates of the project.
Sunway intends to fund the acquisition
via internally generated funds and borrowings. We estimate the net gearing of
Sunway to be lifted marginally to 0.49 times post acquisition from a net
gearing of 0.47 times as of the first quarter of FY17 (1QFY17).
Meanwhile, immediate earnings impact
from the land acquisition is limited as the target launch of the proposed
development will be in 2H18.
We left our earnings forecast for FY17
to FY18 unchanged as we expect earnings contribution from the proposed
development to kick in from FY19 onwards.
Meanwhile, we revised our TP for
Sunway upwards to RM3.82 from RM3.64 after taking into account the net present
value from the proposed development, and also lowering our discount for its property
division to 10% from 20% in view of the improved property market outlook for
Johor and the Klang Valley. Our TP is based on sum-of-parts valuation. — MIDF Research,
July 14
