Sunway’s S’pore property buy plan to expand development pipeline

Sunway Bhd (Feb 19, RM1.70)

Maintain hold with an unchanged target price (TP) of RM1.74: Sunway Bhd plans to acquire a private residential property, Brookvale Park, in Singapore for S$530 million (RM1.6 billion) in a joint venture (JV) with Hoi Hup Realty and S C Wong Pte Ltd (30:60:10). According to the announcement, the property will be redeveloped into a new private residential development with an allowed plot ratio of 1.6 times, subject to authorities’ approval.

Located on 999-year leasehold land in Clementi, Brookvale Park is currently a 160-unit private residential estate with a land area of 373,012 sq ft. The site is located within the Sunset Way enclave, and is accessible by major roads and expressways such as Bukit Timah Road, Clementi Road, the Pan Island Expressway and Ayer Rajah Expressway. It is also in close proximity to tertiary and international education institutions such as Singapore Polytechnic, Ngee Ann Polytechnic, National University of Singapore, Singapore University of Social Sciences and the Canadian International School. Other amenities in the area include Holland Village, Bukit Timah Nature Reserve, Beauty World Plaza and Bukit Timah Shopping Centre.

Based on the press release issued by the sole marketing agent, Jones Lang LaSalle Incorporated, the site may be redeveloped into a residential development of up to 12 storeys, with a total gross floor area of 656,494 sq ft, including a 10% bonus balcony area. This implies the new development may potentially yield 550 units with an average size of 1,100 sq ft. Assume a land cost to gross development value (GDV) ratio of 50% to 60%, we estimate GDV of between S$877 million and S$1.1 billion. This will translate into an average selling price of S$1,450 to S$1,800 per square feet (psf), in line with the recent transacted sale price of The Creek @ Bukit, a new project located within District 21 of Singapore comprising Upper Bukit Timah and Clementi.

The purchase price of S$530 million — which matches the reserve price — represents a land cost of about S$932 psf per plot ratio (psfppr), after factoring in an estimated development charge of about S$26 million. This appears attractive if we compare it with recent land sales in the vicinity, such as Royalville at S$1,960 psfppr (November 2017), Mayfair Gardens at S$1,244 psfppr (November 2017) and the government land sale sites at S$939 and S$1,540 psfppr for Toh Tuck Road (April 2017) and Fourth Avenue (December 2017) respectively.

According to the announcement, Sunway’s cost of investment in the JV is estimated to be about S$70 million. We believe Sunway will have no problem funding this investment in view of its healthy gearing level of 37%, coupled with a cash balance of RM5.2 billion as at end-September 2017. All in, we view this deal positively as it further increases the group’s development pipeline in Singapore. In addition, the site will also allow Sunway to capitalise on the strengthening Singapore residential market.

There’s no change to our financial year 2017 (FY17) to FY19 earnings forecasts pending more details of the proposed development.

We maintain our “hold” recommendation on Sunway with an unchanged TP of RM1.74 based on the average blended calendar year 2018 price-to-earnings ratio per price-to-book ratio of 15 times per 1.1 times. — TA Securities Research, Feb 19

This article first appeared in The Edge Financial Daily, on Feb 20, 2018.

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