Sells Land to Equalbase for Data Centres Development

In a press release yesterday, Sunway announced the sale of two parcels of land measuring 64 acres in Sunway City Iskandar Puteri (SCIP) to Equalbase Pte Ltd, a Singapore-based real estate group, for RM380mn (or RM136 psf). Equalbase intends to construct data centres on the acquired land. Note that this land is part of Sunway’s 1,079 acres in Pendas, Johor, which was acquired in December 2012 at RM10.71 psf – see Appendix 1.

Disposal Price Is Within the Higher Range of Recent Transactions

The disposal price of RM136 psf places Sunway's land sale at the higher end of recent transactions ranging from RM75 to RM138 psf to data centre operators, as detailed in Appendix 2. The land sale is expected to be completed within a year from the announcement date.

A Lucrative Disposal

We believe Sunway has invested in infrastructure development on the land since acquiring it about 12 years ago. Additionally, we understand that Sunway will deliver the land to Equalbase with basic infrastructure and common utilities included. Assuming an additional RM30 psf for infrastructure and utility development costs, the total land cost would amount to RM40.71 psf. At a disposal price of RM136 psf, this translates to a gross profit margin of 70%. This estimate aligns with Crescendo's recent quarterly results, which achieved a gross profit margin of 74%, driven mainly by land sales to data centres (90% of revenue). Assuming a gross profit margin of 70%, we estimate that this disposal could potentially result in a net land sale gain of RM202.4mn, lifting our FY25 earnings forecasts by 23%.

Positive on the Disposal

According to the press release, Sunway stated that Equalbase's latest investment is a continuation of their joint venture, Equalbase Sunway 103°, which was established in November of last year. The carbon-neutral logistics hub in SCIP is situated on a 135-acre plot of land within a Free Commercial Zone with a gross development value (GDV) of RM8bn.

We are positive about the disposal, as it is anticipated to solidify the future growth of the Equalbase Sunway 103° development. The establishment of data centres on the land is expected to enhance demand for industrial spaces within SCIP. This is also likely to elevate the land value of SCIP and stimulate demand for residential products within the area, driven by the spill-over effects of increased job opportunities stemming from Equalbase Sunway 103°.

Benefiting from optimism surrounding the upcoming Rapid Transit System Link and the proposed Johor-Singapore Special Economic Zone (JS-SEZ), the sales performance of Sunway Aviana, a landed development within SCIP, has been strong. Phase 1 and Phase 2 achieved impressive take-up rates of 100% and 91%, respectively, since the official launch in Oct-23. Continuing this momentum, Phase 3, which was launched in Apr-24, has already achieved a remarkable takeup rate of 86%. We expect Sunway to ramp up its residential launches in Johor once there is more clarity on the JS-SEZ.

Impact

No change to our FY24-26 earnings forecasts pending more details on the disposal.

Valuation

We maintain our Buy recommendation with a new SOP-derived TP of RM4.33/share (previously RM4.12/share). This incorporates an increased P/E multiple of 22x (previously 20x) for the property development and property investment segments, reflecting the significant gains from this disposal and the enhanced value of its SCIP development. Additionally, we also factor in the revised TP for Sunway Construction of RM4.46 (previously RM3.76).

Source: TA Research - 3 Jul 2024