Share
Sunway Bhd
(Not listed - target by end-August)
Issue price: RM2.80
Target price: RM3.85
Sunway Bhd, which is targeted to list on the Main Market by end-August, will rank fourth in market value among the listed property developers. The group, an amalgamation of Sunway City Bhd and Sunway Holdings Bhd, will be leaner in group structure. Apart from a larger balance sheet, which will open up more possibilities especially in overseas expansion, the merger will allow synergies to be reaped to the tune of 1% to 2% of combined revenue over the next two years. The listing should re-rate the Sunway Group for its larger market value and share trading liquidity.
Based on RM1.7 billion unbilled property sales and RM2 billion outstanding construction order book, we forecast RM332 million net profit in 2011. Our 2012/13 earnings forecasts impute RM2.1 billion to RM2.9 billion property sales and RM1.2 billion to RM1.5 billion construction job wins per year over 2011/12. Property development will contribute 50% to group operating profit in 2011, property investment 19%, construction 23% and other businesses 8%. Besides cross-utilisation of property and construction expertise, combined administrative and treasury functions will result in cost savings which have yet to be imputed into our forecasts.
Longer term plans are to continue on its overseas drive while cementing a stronger foothold in the domestic market. In property development, 35% of its remaining RM14.5 billion gross development value is located overseas, with China (22%) and Singapore (6%) being the core markets. Some 26% of its outstanding construction order book is in Abu Dhabi and Singapore. The construction business is competitive enough in India and the Middle East. The trading business is already internationalised with 70% of its earnings derived from the overseas market.
We value Sunway Bhd at RM5.9 billion or RM3.85 per share based on sum-of-parts (SOP; fully diluted) before including merger synergies. Based on part share settlement for Sunway City and Sunway Holdings shareholders (20% cash, 80% shares), both stocks and their warrants offer 37% upside. We value the property development business on revised net asset value (land surplus and discounted cash flow), property investment on 7% to 10% cap rate, and construction and the other businesses on price-earnings ratios (PER). Our RM3.85 SOP valuation implies still fair 15 times 2011 PER and 12.3 times 2012 PER for the enlarged group. — Maybank IB Research, July 27
