Dijaya acquired adjacent Bok House land

Last week, Dijaya Corporation announced the acquisition of the 1.3-acre Bok House land, which is adjacent to Wisma Angkasaraya, for RM123 million or RM2,200 per sq ft (psf). Dijaya intends to develop the site into an integrated commercial development comprising of an international hotel, serviced suites and/or office suites.

The price paid for the said land is lower than the RM2,588 psf Sunrise paid for Wisma Angkasaraya. Recall that in May 2008, Sunrise acquired Wisma Angkasaraya, which sits on prime 1.6 acres of commercial land opposite the KLCC Twin Towers, for RM179m. We consider the premium of 18% for the Wisma Angkasaraya land to be reasonable considering that it has unobstructed view of the KLCC Twin Towers and access from both Jalan Ampang and Jalan P Ramlee.

Potential joint development with Dijaya?

Sunrise has the intention to re-develop Wisma Angkasaraya into an award-winning commercial development. It will be appointing a world-class architect for the said project. However, given that the land area of 1.6 acres is rather small, we had previously expected Sunrise to acquire Bok House to expand its landbank into a more “reasonable” 2.9-acre site.

Since Dijaya has acquired the Bok House land instead, the question we may ask now is whether these two developers will come together to jointly develop these two adjacent pieces of land. We think this is not an unfathomable possibility considering that both companies have a common major shareholder in Tan Sri Dato’ Tan Chee Sing who owns a 7.7% interest in Sunrise and 67.2% interest in Dijaya.

We believe a joint development will be a win-win formula for both developers as it will (1) eliminate direct competition between these 2 developers, and (2) provide greater flexibility in design.

While we believe there is merit for a joint development, there is no urgency to do so in the immediate term as conditions may not be conducive yet to launch the projects. Clearly, with the hefty land cost involved, these two projects are meant for the next market up-cycle.

Reiterate Buy call

We reiterate our buy call and target price of RM3.30 based on 10x P/E to CY10 EPS. This is supported by our RNAV estimates of RM3.44. Trading at just 6.8x forward P/E, Sunrise’s valuation is undemanding for an award-winning developer with prime landbank in the Klang Valley.