Sunway City - Inks JV for SSTEC for Tianjin development

• Sunway City Bhd (SunCity) announced yesterday that it had signed a deal with Sino-Singapore Tianjin Eco City Investment and Development Co Ltd (SSTEC) for the joint development of several plots of land in Tianjin, China measuring 40 hectares.

• SSTEC, the master developer of the Tianjin Eco-City, is itself a JV between a Chinese consortium led by Tianjin TEDA Investment Holding Co and a Singaporean consortium led by the Keppel Group.

• The 60:40 JV between SunCity and SSTEC will jointly develop about 28 hectares (69acres) of land in Tianjin Eco-City.

• The JV follows an earlier MoU and collaborative agreement between SunCity and SSTEC to develop a total of 40ha (100 acres) of land in the eco-city. SunCity said the remaining 12 hectares would be developed by another planned foreign equity JV to be entered into later.

• We understand the estimated RM4.3 billion GDV development – consisting of residential and commercial properties – would be undertaken in three stages, spanning over five years and should start in March 2011, at the earliest. We gather that properties in the surrounding area are priced at over RMB7,000psf or over RM350psf.

• While this is in line with SunCity’s plans to expand overseas, we are taking a NEUTRAL stance at this juncture. We think take-ups in second-tier cities would be challenging and the group does not have a proven track record in the overseas markets, as yet.

• We believe the group will be re-rated once strong earnings contributions from overseas start to filter through. Admittedly, the group’s maiden China venture in Guanghao has done well – representing an 80% take-up – although the development value is quite insignificant at this stage at RM110mil.

• We reaffirm our HOLD rating on SunCity with our fair value unchanged at RM4.13/share based on a 30% discount to our estimated NAV of RM5.90/share.

• At current price, the group is trading at a 32% discount to its NAV which we think is justified due to the lack of re-rating catalysts.

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