Sunway Bhd (May 12, RM3.42)

Maintain trading buy with an unchanged target price of RM3.86: Sunway Bhd has entered into agreements to acquire a total of five pieces of land in Kelana Jaya, Selangor.

Total land size is 17 acres (6.9ha) and the total price is RM286 million. The purchase price is based on the conclusion of an open tender bidding, and the effective valuation works out to RM386 per sq ft. The purchase will be funded by a mixture of debts and internally generated funds.

The land is easily accessible via the Damansara-Puchong Highway, Federal Highway, New Klang Valley Expressway and other roads. It is situated next to Western Digital (M) Bhd in the Sungei Way Free Trade Zone.

It is also surrounded by a 15-acre water retention pond which will be beautified by Sunway. Nearby public transport systems include the Setia Jaya KTM and Bus Rapid Transit-Sunway Line stations. Lastly, the land location is only 10 minutes from Subang Airport.

Sunway is proposing a mixed development comprising serviced apartments and retail shops, with a gross development value of RM1.8 billion. There will be seven residential blocks with a commercial podium with an estimated selling price of RM800 per sq ft.

Based on the plot ratio of four times on the land, total built-up area will be three million sq ft. The first launch is expected to be in second half of financial year ending Dec 31, 2016 (2HFY16), and the development period is expected to be around five years.

The valuation of RM386 per sq ft is fair in our view as it is close to the selling price of RM365 per sq ft for Kelana Jaya leasehold commercial land. The slight premium of 6% is likely to be due to the additional land which is freehold in tenure and the scarcity of available sizable pieces of land in Kelana Jaya.

As the project is expected to be launched only in 2H16, we expect earnings to start to kick in only from FY17 onwards. Hence, we maintain our earnings forecast for both FY15 and FY16. — MIDF Research, May 12

This article first appeared in The Edge Financial Daily, on May 13, 2015.

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