Sunway’s acquisition of Sri Hartamas land ‘fair’ — analysts

• Sunway’s land bank will increase by 0.2% to 3,068 acres and effective GDV will rise by 2.4% to RM36.4 billion.

KUALA LUMPUR (May 17): Sunway Bhd’s acquisition of 5.09 acres of freehold land in Sri Hartamas for RM170 million, with an additional RM50 million if the group managed to increase the development plot ratio (PR), is deemed fair by analysts.

Hong Leong Investment Bank (HLIB) said the land has a proposed mixed development comprising serviced apartments, retail and wellness suites with an indicative gross development value (GDV) of RM850 million to RM1.1 billion depending on the approved plot ratio. 

“In both cases with PR of 5 or 7, the cost-to-GDV will be 20%, which we deem fair given the prime location and the freehold tenure of the land,” said the research house in a note on Wednesday (May 17).

HLIB, which maintained its "buy" call on the stock with a target price of RM2.65, said post-acquisition, Sunway’s net gearing will increase to either 65.5% (PR of 5) or 65.9% (PR of 7). As at the fourth quarter of 2022 (4Q2022), HLIB noted that the group’s net gearing (including perpetual sukuk and irredeemable convertible preference shares as debt) stood at 64.2%.

To recap, HLIB noted that the land currently has an approved development order with PR of 5, with an intention by Sunway to seek approval to increase the PR to 7. 

Should the approved development order with a PR of 7 be obtained within a year from the sales and purchase agreement date, Sunway will pay an additional RM50 million to YNH Property Bhd.

HLIB maintained its financial forecasts on Sunway pending the release of its 1Q2023 results to be announced on May 24, 2023.  

Nonetheless, it said investors could take advantage to gain an early exposure to Sunway as its healthcare segment prior to its value unlocking exercise through initial public offering listing will be completed by Jan 31, 2028 or earlier. 

Meanwhile, Maybank Investment Bank (Maybank IB) Research, in a separate note on Wednesday, said it has a neutral stance on Sunway's latest land acquisition, adding that the price is fair. 

The research house estimates the new development on the said land, which is slated for launch early 2025, will enhance Sunway’s earnings per share by 0.5 sen per annum.

Maybank IB Research said the forecast assumes pre-tax margin of 20% over the development period of five years, and an annual net profit of RM26 million from 2026 onwards.

It said post-land acquisition, Sunway’s land bank will increase by 0.2% to 3,068 acres and effective GDV will rise by 2.4% to RM36.4 billion.

Maybank IB Research maintained its "hold" recommendation on the stock with a target price of RM1.67 (on unchanged 0.8 times FY2023 estimated price to book value) pending the release of Sunway’s 1Q3023 results.