New sales outlook for Sunway seen to remain stable

Sunway Bhd (June 27, RM1.55)

Maintain “neutral” with an unchanged target price (TP) of RM1.60: Sunway Bhd announced that its wholly-owned subsidiary had on Tuesday entered into a sale and purchase agreement with Hoi Hup Realty Pte Ltd (Hoi Hup) for the purpose of disposing of its entire 30% equity stake in Hoi Hup Sunway Novena Pte Ltd (HHSN) for a cash consideration of S$39.88 million (RM118.2 million).

The proposed disposal is expected to be completed by June 30, 2018.

HHSN was incorporated in December 2012 to undertake the development of land awarded by the Urban Redevelopment Authority of Singapore.

The project developed by HHSN was named Royal Square at Novena, comprising a hotel, and medical and retail units.

The project was completed in July 2017. The hotel was kept as investment property, while 70% of the medical and retail units have been sold.

The proposed disposal will enable Sunway to monetise its investment in HHSN.

Nevertheless, Sunway is expected to record estimated disposal loss of S$100,000 after taking into consideration of the latest net book value as at March 31, 2018.

The proceeds from the disposal is expected to reduce Sunway’s net gearing to 0.4 times from 0.42 times as of the first financial quarter ended March 31, 2018 (1QFY18).

The proceeds from the disposal are expected to be used for working capital and new land bank acquisitions.

Meanwhile, earnings impact from the disposal is limited as the disposal loss of S$100,000 is less than 1% of our FY18 earnings forecast of RM605.8 million. Hence, we make no changes to our earnings forecast.

We maintain our “neutral” call on Sunway with unchanged TP of RM1.60, based on sum-of-parts valuation.

New property sales outlook for Sunway remains stable as management is targeting to chalk up new sales of RM1.3 billion in FY18 on the back of a target launch with a gross development value of RM2 billion. — MIDF Research Bhd, June 27

This article first appeared in The Edge Financial Daily, on June 28, 2018.

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