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Sunway Holdings (ECM Libra) buy; target price RM2.00

Looking at another China venture

· Enters into MOU for a China property venture

altSunway had on 6 May 2010 entered into a memorandum of understanding with XuanCheng Municipal Government for the purpose of developing an integrated city, consisting of an international-standard entertainment park, exhibition centre, hotels, shopping malls, offices and residential units on land to be acquired from XuanCheng Municipal Government.

XuanCheng is a prefecture-level city in southeastern Anhui province, People's Republic of China. It lies 260 km to the west of Shanghai. Bordering the provinces of Jiangsu and Zhejiang, it covers an area of 12,340 sq km and has a population of 2.8m.

The MOU sets out the intention and proposed collaboration between Sunway and XuanCheng Municipal Government. Under the terms of the MOU, Sunway shall be the master developer and shall undertake a feasibility and market study on the proposed development. Sunway will also prepare a preliminary master plan within 4 months from the date of MOU.

· Comments
While details of the proposed venture are sketchy at this point in time, we are not bullish on this venture. In terms of economic development, Anhui
province lags behind that of its neighbour, Jiangsu and Zhejiang. Furthermore, industrial activities in Anhui province are mainly concentrated in Maanshan and Wuhu, rather than XuanCheng. We noted that GDP per capita of XuanCheng is RMB13,051 as compared to Sunway’s maiden property venture in Jiangyin, Jiangsu province which has GDP per capita of RMB91,538. Nevertheless, it is premature to jump into conclusion at this juncture as the proposed venture is still at MOU stage.

· Reiterate BUY call
Sunway is our top BUY for the construction sector. This is premise on (1) strong earnings growth of 47.1% in FY10, (2) undemanding forward P/E valuation of 7.5x, (3) more landbank acquisition in the pipeline, and (4) strength in securing overseas construction contracts, in particular in Abu Dhabi and India. Our target price is unchanged at RM2.00 which is derived from 10x P/E on FY10 EPS. This is further supported by sum-ofparts valuation of RM2.74.
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