Sunway Bhd: Bargain basement valuations

Sunway Bhd (Oct 5, RM2.03)
Maintain buy with adjusted target price of RM3.30 from RM3.50: Since listing on Aug 23, Sunway's shares have retreated 33% partly because it is now non-syariah compliant. But this should be corrected at the Securities Commission (SC) meeting in November, as Sunway Holdings and SunCity were both syariah-compliant pre-merger. And, both stocks were suspended during a volatile equity market, and investors took the opportunity to sell upon re-listing.

Property sales are on track to meet the FY11 target of RM1.4 billion (1HFY11: RM884 million). The recent launch of Miltonia Close in Singapore (gross development value [GDV] S$370 million [RM903 million], average selling price S$800 psf) saw a strong 70% take-up. Its Tampines design, build and sell scheme (DBSS) project in Singapore (GDV S$465 million) also garnered strong take up of 40% in the first week of launch. The group will launch another DBSS project at Yuan Ching Road (GDV S$360 million) which should attract more interest after recent adjustments to DBSS policies. Locally, the launch of RM446 million Sunway Velocity has raked in RM297 million sales (100% take-up for retail units, offices 90%, service apartments 50%). Given its proximity to Cochrane MRT station, we estimate each RM100 psf rise in land values would raise our base sum-of-parts (SOP) value by 2.3%.

It has been prequalified for all three scopes for the MRT (civil, depot and stations). Employing the virtual data centre (VDC) framework and being cost competitive — clinching the RM569 million LRT extensions — Sunway will be a strong contender for MRT elevated works.

The recent selldown has trimmed valuations to only 6.4 times FY12F price-earnings ratio and 0.7 times price-to-book value, making it the cheapest property and construction stock and second cheapest conglomerate in our coverage. Note that Tan Sri Jeffrey Cheah bought 4.7 million shares of Sunway (0.4% of paid up capital) recently at an average price of RM2.13. We maintain our "buy" rating with adjusted target price of RM3.30 based on 10% discount to SOP. — Hwang DBS Vickers Research, Oct 5