Sunway re-looks project launches

PETALING JAYA (July 10): In yet another sign of the impending slowdown in the high-end property market, Sunway Bhd is deferring the launch of some of its projects worth RM500 million that were initially slated to take off this year. The projects are related to Sunway Geo @ Sunway South Quay and Sunway Velocity.

The former has a gross development value (GDV) of RM1.85 billion while the latter has a GDV of RM3 billion. In response to questions sent by The Edge Financial Daily, Sunway Group’s property development division said it was reviewing the plan with a view of getting the most suitable launch date.

“Sunway is reviewing the plan for deferment and currently conducting an in-depth market study to recognise the best launch date[s],” it stated. Property analysts are not surprised by Sunway’s move.

“They could be exploring deferring the launches due to the soft demand in high-end projects right now. The two projects are in the high-end segment,” said a property analyst with a local research house. The analyst pointed out that aff ordable properties that are currently popular are in the RM250,000 to RM750,000 price range. Another property analyst observes that investors are starting to shy away from commercial properties.

“There is a slowdown in the commercial property segment. So perhaps, Sunway may delay the launches of its offi ces, retail and designer office suites for the two projects,” said the analyst. “The commercial segment is quite tough now. This segment is dominated by investors and they are affected by the 70% LTV (loan to value) ruling. “Additionally, there is just too much supply of offices and commercial properties coming into the market.

Planned for an area f 9.3ha. Sunway Velocity compromises retail, office and residential components.

Every year, the KL market can only absorb one million to two million sq ft of office space, but the incoming supply is 10 million sq ft — there’s just too much,” he added. AmResearch noted in a report that Sunway is looking at RM1 billion worth of new sales for FY12 ending Dec 31, vis-à-vis its previous target of RM2 billion on the back of continued subdued appetite for commercial properties.

Despite the potential delay in the launch of Sunway’s key projects, AmResearch has kept its estimates unchanged for the developer’s FY12 forecast as it believes the group has a strong construction order book of RM4 billion and property unbilled sales of RM1.7 billion that will keep earnings intact over the near term.

“But we have trimmed our projections for FY13F and FY14F by 2% to 8% to RM385.5 million and RM405.4 million respectively in light of the revisions of the targets,” it said. “In 2HFY12, Sunway will focus more on landed residential properties. It also plans to launch RM500 million to RM600 million worth of residential properties in Penang and the Klang Valley,” it added.

AmResearch noted that from a valuation standpoint, Sunway is trading at a steep discount — more than 30% of its sum-of-parts valuation of RM3.60 per share and at a cheap price-earnings ratio of eight times.

“While the stock appears attractive, there are no near-term catalysts,” it said.

This article appeared in The Edge Financial Daily July 10, 2012.