Sunway Bhd (Sept 7, RM3.11)

Maintain buy call with an unchanged target price of RM3.40: We are positive on Sunway Bhd’s new land acquisition in Singapore, as the new land is located in a more viable area with a lower average selling price (ASP). The land cost, which makes up 46% of estimated gross development value (GDV), and the implied ASP of S$780 (RM2,354) per sq ft (psf) are reasonable. We make no changes to our earnings forecasts as the development will start in two years.

A consortium comprising Hoi Hup Realty Pte Ltd, Sunway, Oriental Worldwide Investment Inc and Azuki Investments Pte Ltd has won a tender to acquire 5.19 acres (2.1ha) of 99-year leasehold land for a purchase consideration of S$240.95 million.

The equity interest ratio of the consortium is 62:30:5:3. The land has a plot ratio of three times, and an allowable gross floor area of 678,600 to 610,738 sq ft, which translates into a land cost of S$355 psf.

Although the property sector is slowing down in the region, we believe Sunway’s move to buy new land in Singapore is to replenish its land bank portfolio there — since its ongoing projects in Novena and Mount Sophia will be completed in about two years’ time.

It also signals that Sunway would like to focus on more viable areas with lower ASPs, as the implied ASP based on the estimated GDV of S$530 million is around S$780 psf, in line with the current market price in that area.

The purchase price also seems reasonable, given that land cost makes up about 46% of the GDV, in line with Sunway’s previous land transactions in Singapore.

The land will be developed into 10 blocks of 17-storey executive condominiums, featuring 640 units. It is located 400m from the Tongkang light rail transit station and two stops away from Sengkang Central.

Surrounding amenities include eight schools and two malls, while the Sengkang Hospital will be completed in 2018.

The impact on our revalued net asset value estimate is minimal, after factoring in the contribution from this new land. — RHB Resesarch, Sept 7

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This article first appeared in The Edge Financial Daily, on Sept 8, 2016. Subscribe to The Edge Financial Daily here.


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