RM10b boost to Sunsuria

KUALA LUMPUR: Having obtained shareholders’ approval for its capital raising plan last week, Sunsuria Bhd, formerly Malaysia Aica Bhd, will this week unveil an asset injection exercise by major shareholder Datuk Ter Leong Yap, aimed at expanding the group’s property portfolio to rival other midsized developers.

According to sources, the group is expected to enter into heads of agreements this week, with private vehicles linked to Ter, for the acquisition of full or majority interest in three property development entities as well as a project in Bukit Raja, Selangor that will together contribute a combined gross development value (GDV) of RM10.2 billion.

Sources told The Edge Financial Daily that the development projects that could be injected into Sunsuria include a 50% interest in the 300-acre (121.4ha) Xiamen University Township in Salak Tinggi, Sepang (with an estimated GDV of RM4.5 billion), a majority stake in the Medini Development in Iskandar, Johor (with an estimated GDV of RM4.5 billion), a majority interest in the 7th Avenue Development in Setia Alam (with an estimated GDV of RM1.1 billion), and the bungalow project in Bukit Raja with a GDV of RM81 million.

Among these projects, of particular interest would be the Xiamen University Township project which is a 50:50 joint venture with Sime Darby Bhd. The township land, which houses the Express Rail Link’s Salak Tinggi station, is adjacent to the country’s first China university branch which is expected to attract 10,000 students and a few thousand university staff to the neighbourhood. Ter, in his personal capacity, is helping to facilitate the setting up of Xiamen University on Sime’s landbank in Salak Tinggi.

According to sources, the total purchase considerations for the identified acquisitions have yet to be determined at this juncture. Nevertheless, Sunsuria is expected to utilise a mixture of borrowings, internal funds and fresh proceeds to be raised from a capital raising exercise — comprising a three-for-one rights issue and private placement — for this purpose.

The capital raising aims to raise a minimum of RM184.5 million, based on an indicative issue price of 75 sen for the placement shares, and an indicative issue price of 65 sen per share for the rights issue with the assumption that only Ter takes up the rights shares.

Ter currently controls 50.12% of Sunsuria, via direct and indirect interests. He built up his stake after acquiring a substantial interest in January from previous major shareholder Tan Sri Robert Tan and subsequently launched a takeover offer for the group at 85 sen per share.

Sunsuria’s stock has since doubled, closing at RM1.62 last Friday, with a market capitalisation of RM256.5 million.

Judging from the recent active trading interest in its shares, Sunsuria is shaping up to be another favourite midsized property play as investors are anticipating the injection of assets from the major shareholder to bring up the group to another level.

In a recent report, Kenanga Investment Bank said Ter has been able to source land at attractive prices as the target landbanks work out to an average of 7% of total GDV which implies richer than average gross margins of closer to 40%.

After the injection into Sunsuria, Kenanga IB believes that the costs of the target landbanks will remain compelling at about 10% of total GDV based on current land values, which would imply about 35% to 40% gross margins.

“The group is targeting RM1 billion of launches for its financial year ending March 31, 2015 (FY15) which would feature maiden launches of all its newly-injected landbanks. We estimate FY15 to FY16 sales of RM650 million to RM710 million, implying conservative take-up rates.

“If the group can maintain an average of 15% y-o-y growth in sales, we believe its FY17 net profit could hit a high of RM140 million,” it wrote.

Kenanga has a non-rated, ex-all fair value of RM1.22 for Sunsuria, which represents a 39% upside to its ex-all share price of about 89 sen after adjusting for the three-for-one rights issue at an indicative issue price of 65 sen each.


This article first appeared in The Edge Financial Daily, on May 19, 2014.