SUNWAY’s 35%-owned JV has won a land tender for c.5 acre at Tengah, Singapore which would complement its adjacent development there. We are positive with its Singapore land bank replenishment albeit it would only be earnings accretive upon development completion (c.FY29). Hence, we maintain our forecasts as the project will not contribute within our forecasts period, and our SoP-TP of RM2.27. That said, given the recent strong share price support, we downgrade our call to UP (from OP).

Yesterday, the group’s JV Sunway-Hoi Hup Pte Ltd (effective 35% stake owned by SUNWAY) was awarded a c.5 acre land parcel tender situated in Plantation Close, Tengah, Singapore by the Housing and Development Board (HDB) for SGD423.4m (c.RM1.50b). Translating to SGD1.94m psf, the land is acquired at a slight discount to its adjacent land acquisition of SGD348.5m for c.4 acres (SGD1.97m psf) in Tengah acquired in Sep 2023.

The land is in a prime location within a well-established area and targeted to facilitate the development of an EC with an estimated 560 units (according to HDB). The development is scheduled to commence on 14 Feb 2024, with a projected completion within a 60-month timeframe, or sooner. Additionally, the launch is targeted for mid-2025 and funding for the project will be sourced from internally generated funds as well as borrowings.

Strong value accretion. For the time being, the group has yet to provide details on the project’s effective GDV. To evaluate its prospects, we gathered that nearby EC projects were launched at an estimated price of SGD2.17m/unit. Using its indicative 560 units, this could translate to a prospective GDV of SGD1.22b. On the flipside, assuming a land cost-to-GDV ratio of c.50% (close to the group’s previous land tender win i.e. Parc Central Residences, Tampines), we derive a potential GDV of SGD850m.

Overall, this could reflect an effective GDV potential of RM1.04bRM1.50b to SUNWAY based on its 35%-stake in the JV.

Lumpy long-term pay off. Recall that profits for EC projects could only be recognised upon their completion. Hence, stretching its 60-month time frame, profits from the above may only appear in FY29 books. Maintaining our assumed net profit margin of c.10% for its Singapore projects, this could amount to RM104m-RM150m to SUNWAY. Meanwhile, a loan undertaking of RM500m may raise the group’s net gearing in 3QFY23 from 0.55x to 0.58x which we deem to be acceptable for the group, having previously leveraged to 0.60x.

Forecasts. Maintained for now as profit recognition for the above is beyond our forecast period. Incorporating a potential GDV addition of RM1.5b would raise our discounted property RNAV from RM2.69b to RM2.71b. This does not translate to any change to our TP with property development accounting for 20% of our SoP-TP, being dominated by SUNWAY’s healthcare segment (47% of our SoP valuation).

Valuations. We maintain our SoP-TP of RM 2.27. We had applied 55% discount to RNAV for SUNWAY’s property development segment (in line with industry peers) as we reckon sentiment may pick up in the sector from higher interest in the space thanks to ongoing infrastructure projects. Besides this, the group’s property development and healthcare segments remain as major contributors to SUNWAY’s overall valuations. There is no adjustment to our TP based on ESG given a 3- star rating as appraised by us.

Source: Kenanga Research - 16 Feb 2024