Sunway Berhad -
Target Price: RM3.08
News SUNWAY’s wholly-owned subsidiary, Sunway City (Penang), has proposed to acquire 24.5ac, comprising of 4 pieces of freehold land in Paya Terubong, Pulau Penang, for a total consideration of RM267m or RM251 psf. The purchase consideration is derived from a successful bidding in an open tender, which the minimum reserve price was fixed at RM200 psf (which is 20% lower than the purchase price). The project has a potential GDV of c. RM1.5b.
Comments Land cost is considered fair being 18% of the GDV as it is within the industry average range of 15%-20%. The acquisition will be financed by internally generated funds and bank borrowings and we estimate its net gearing to increase from 0.25x to 0.31x in FY14. The acquisition will likely be completed within three months from the SPA and construction works starting in early FY15.
The project’s GDV of RM1.5b consists of commercial shops (30%), SOHO and high-rise residential units (70%). We reckon the GDV is reasonable based on an ASP of RM803psf given the plot ratio of 2.5x and assumed 70% utilisation rate. This is in-line with the company's estimated selling price of RM650psf for residentials and RM1000psf for commercial retail lots.
The land is strategically located between Penang city centre and the Penang airport. It is also surrounded by tourist attractions (i.e. Kek Lok Si Temple and Train Station to Penang Hill Resort) and matured residential townships, which would likely cater for upgraders in the area. The project is 400m from the main road, which is connected to Jalan Air Itam to Georgetown and also to the Bayan Lepas Free Trade Zone and Penang Bridge through Jalan Relau.
We are long-term positive on the project. The residential component of the project is likely to target locals in the affordable range. While the acquisition price is reasonable, earnings accretion will likely take place from FY15 onwards.
Outlook Meanwhile, we are looking forward to more new launches, including Medini, Mount Sophia and on-going projects that include Bukit Mertajam, Sunway Velocity, Sunway South Quay and etc. Management guided that FY13 sales are expected to beat the internal and our estimates of RM1.3b at RM1.8b, respectively. However, management is cautiously guiding FY14E sales target of RM1.8b until they ascertain the impact of the recent tightening measures put in place, particularly as SUNWAY has full exposure to DIBS. Nonetheless, the target is still better than our initial FY14E estimates of RM1.5b.
Forecast Revising up FY13E and FY14E earnings by 3.6% and 9.0%. This is due to us revising higher our FY13 and FY14E sales targets by 37% and 15% to RM1.76b and RM1.80b.
Rating Maintain OUTPERFORM
Valuation The project increases our SoP by 6 sen. However, we prefer to maintain our SoP driven TP of RM3.08 as we are widening our property division discount rate (refer overleaf for details).
Risks to Our Call Unable to meet sales targets or replenish landbank. Sector risks, including more negative policies.