KEY INVESTMENT HIGHLIGHTS

• Land acquisition in Taman Taynton
• Expanding property presence in Cheras
• Earnings forecast maintained
• Maintain NEUTRAL with a revised TP of RM4.24

Land acquisition in Taman Taynton. Sunway Berhad announced that its wholly owned subsidiary Sunway Melawati Sdn Bhd has entered into a Sales and Purchase Agreement (SPA) with Viva Impian Sdn Bhd to acquire 17.58 acres of freehold land in Taman Taynton, KL for a purchase consideration of RM320m. The land is strategically located with direct access from the Middle Ring Road 2 (MRR2). The land acquisition is expected to be completed in 2QFY25.

Expanding property presence in Cheras. We view the land acquisition positively as it will strengthen Sunway Berhad's presence in Cheras. The land that will be acquired is adjacent to its Sunway Alishan residential development in Cheras and the land is earmarked for a mixed-use development with serviced apartments and retail outlets. Indicative GDV for the project is estimated to be at least RM3.2b. Development period for the project is estimated at 11 years with target launch in early of FY27. The latest land acquisition in Cheras translates into purchase consideration of RM417 per sq. ft which is higher than RM289 per sq. ft of land acquisition for Sunway Alishan development in 2021. Nevertheless, land cost to GDV of 10% is deemed attractive.

Earnings forecast maintained. Sunway Berhad intends to fund the acquisition via internally generated funds and borrowings. We estimate net gearing of Sunway Berhad to increase marginally to 0.51x from 0.49x in 2QFY24. Meanwhile, earnings impact in the near-term is expected to be limited as first launch will be in FY27. Hence, we maintain our earnings forecast for FY24F/25F/26F.

Maintain NEUTRAL with a revised TP of RM4.24. We revise our TP for Sunway Berhad to RM4.24 from RM4.15 as we include the RNAV contribution of the land acquisition in our sum-of-parts (SOP) valuation.

We also update valuation of Sunway REIT in our SOP valuation following recent revision in target price for Sunway REIT. While outlook for Sunway Berhad is largely positive with improving prospect for Iskandar Malaysia and upcoming listing of healthcare division will unlock value of the division, we think that positives are largely priced in at this juncture.

Hence, we maintain our NEUTRAL call on Sunway Berhad.

Source: MIDF Research - 3 Oct 2024