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Sunway City Bhd (RHB Research) maintain outperform; fair value RM5.48

Sunway City
Another Landbanking Effort

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? Buying Penang land for RM38.8m. Suncity announced that its wholly-owned subsidiary – Sunway City (Penang) S/B had entered into a Sale and Purchase Agreement (SPA) with Sungei Ara Holdings S/B to acquire a freehold land in Penang, measuring 32.74 ha (or 80.9 acres). Total cash purchase consideration is RM38.8m, funded by internal funds.

? Location of the land. The price tag translates into RM11 psf, which is rather attractive. The land is located at the south-west of Penang Island, surrounded by matured townships, such as Rain Tree Garden, Regency Heights, Vistaria Apartment and Sunrise Garden etc in Sungei Ara, as well as Suncity’s existing project Sunway Merica. The land is also near to Penang International Airport, which is undergoing planning for expansion. It is also close to the new Penang Second Link Bridge, which is currently under construction and is easily accessible via Jalan Dato Ismail Hashim.

? For high-end landed development, with a GDV of RM800m. The proposed development for the new landbank comprises semi-ds and bungalows, and is estimated to yield a GDV of RM800m. As the acquisition is expected to be completed within six months from the date of SPA, we think first launches of the project would be around mid-2011. Suncity’s ongoing projects (Sunway Merica, Sunway Aspera and Sunway Perdana) are selling well, with a take-up rate of about 40-45% on average with signed SPAs.

? Forecasts. The estimated GDV of RM800m is higher than expected as our forecasts were previously based on a GDV of RM621m as guided by
management earlier. Hence, we correspondingly adjust our FY11-FY12 earnings up by 7-11%.

? Risks. The risks include: 1) a drastic cap on lending rate imposed by Bank Negara Malaysia; 2) higher tax bracket for real property gain tax (RPGT); 3)
delays in launches and approvals; and 4) country risks.

? Investment case. As a result of higher-than-expected GDV, our RNAV per share estimate is revised to RM6.44, from RM6.41. Based on an unchanged 15% discount to RNAV, our indicative fair value is raised slightly to RM5.48, from RM5.45. We maintain our Outperform rating on the stock.


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