SUNWAY is selling 64 acres of land in Sunway City Iskandar Puteri (SCIP) to Singapore-based Equalbase Pte Ltd (Equalbase) for about RM380m. We estimate that the sale will result in a gain of RM324m (or 5.7sen/share). We maintain our forecasts but raise our TP by 8% to RM2.66 (from RM2.47). Maintain UNDERPERFORM given its rich valuations.

SUNWAY is selling 64 acres of land in Sunway City Iskandar Puteri (SCIP) to Singapore-based Equalbase for about RM380m. Equalbase plans to build data centres on the land. SUNWAY is currently jointly developing a RM8b sustainable free commercial zone with Equalbase in SCIP.

At RM136 psf, we believe the deal was priced fairly with asking prices for Iskandar Puteri data centre land ranging between RM135 psf to RM140 psf.

Based on our back-of-the-envelope calculations, at a book value of the land of c.RM55.4m (RM866k/acre or RM20 psf) in CY12, we estimate the gain to be at RM324m (or 5.7sen/share). Nonetheless, the RM380m proceeds will have little impact on its net debt and gearing of RM7.6b and 0.5x, respectively.

Forecasts. Maintained as our forecasts exclude one-off land sales.

Valuations. However, we raise our SoP-TP by 8% to RM2.66 (from RM2.47), having reflected the gain. We maintain a 55% discount to RNAV for SUNWAY’s property development segment (in line with industry peers) (see Page 2). We also update our TP for SUNCON (OP; TP: RM4.28 from RM3.16). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like SUNWAY for: (i) having an eye for good land parcels, enabling it to execute quick turnaround for its property projects, (ii) it growing private healthy business backed by a pipeline of new medical centres within brown field townships, (iii) a diversified range of investment assets that provides recurring incomes, and (iv) a trusted Sunway brand. However, its valuations are fair following the recent run- up in its share price. Maintain UNDERPERFORM.

Risks to our call include: (i) a strong pickup in the property, hospitality, and MICE sectors, (ii) a decline inmortgage rates boosting affordability; and (iii) Improved spending confidence, prompting consumers to buy big-ticket items including properties.

Source: Kenanga Research - 3 Jul 2024