Malaysia PP 7767/09/2012(030475) MARKET DATELINE Corporate Highlights Briefing Note Sunway Berhad Tying Up With Khazanah RHB Research Institute Sdn Bhd A member of the RHB Banking Group Company No: 233327 -M 20 December 2011 Share Price : RM2.37 Fair Value : RM2.42 Recom : Market Perform (Maintained) Table 1 : Investment Statistics (SUNWAY; Code: 5211) Net Issued Capital (m shares) 1,292.5 Market Cap (RMm) 3,063.2 Daily Trading Vol (m shs) 0.2 52wk Price Range (RM) 1.67 2.80 Major Shareholders: (%) Tan Sri Dato Seri Dr 45.0 Jeffrey Cheah GIC 12.5 FYE Dec FY11 FY12 FY13 EPS chg (%) - - - Var to Cons (%) (2.0) (4.6) (0.1) PE Band Chart Bloomberg: SWB MK FYE Turnover Profit # EPS # Growth PER C.EPS* P/CF P/NTA ROE Gearing NDY Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%) 2010 3,134.5 325.0 25.2-9.4-6.6 1.3 12.5 56.2-2011f 3,363.4 296.4 22.9 (9.1) 10.3 23.4 7.0 1.2 10.8 50.0-2012f 3,579.1 324.3 25.1 9.4 9.4 26.3 5.5 1.1 10.7 39.3 1.7 2013f 4,153.3 379.7 29.4 17.1 8.1 29.4 4.3 1.0 11.4 37.1 1.9 Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC * Consensus Based On IBES Estimates # Normalised Going into Medini. Sunway Bhd announced that it has entered into a subscription and shareholders agreement (SSA) with Khazanah to establish a JV namely Semerah Cahaya S/B (SCSB). SCSB will acquire leases of up to 99 years over a 691-acre piece of land in Zone F Medini Iskandar. Total purchase consideration of RM745.3m translates into a land cost of RM24.73 psf. Sunway is required to pump in an intial equity investment of RM136.8m, and will subsequently subscribe for additional shares in the JV for RM198m in four tranches (RM49.5m p.a.) commencing on the 18 th month from the date of the lease purchase agreement. This means Sunway will have an initial equity stake of 38%, and gradually increase to 60%. The initial investment will be funded mainly via internal funds, but management does not rule out a cash call (i.e. rights issue) going forward to strengthen the company s financial position to take on the project. Sunway s current net gearing stands at 0.46x. Good project but fairly competitive. We have no concerns on the JV, given the strong backing of Khazanah. Land cost is cheaper compared to E&O s RM38 psf. This integrated development project will be named Sunway Iskandar (SI), and is estimated to yield a GDV of RM12bn. We like the area given that it is very close to the 2 nd link CIQ (just 5 min away). However, in our view, this is a brave move for Sunway. We have three key concerns: (i) Intense competition is foreseen. SI is right next to E&O s 210-acre JV project (GDV RM3bn) at Medini Central. Both projects are big. Sunway s products will leverage on the natural environment features (mangrove reserve and river), differentiating itself from E&O s wellness concept. Both E&O and Sunway similarly have the backing of Temasek and GIC from Singapore at project and company level, and are targeting at the foreigners market, and will start around the same time in end 2012/early 2013. Both E&O and Sunway have strong foreigners market presence E&O: Singapore and Japan (via Mitsui), Sunway: Australia, China, India, and Singapore. Other developers which have residential projects in Medini include UEM Land, WCT and Bina Puri; (ii) Unlike E&O, Sunway does not have an option to move in phases. This is an additional business risk to Sunway if SI underperforms the others; and (iii) Unless the initial phase is proven to be successful (post 2013), we think the market may not like the rights issue exercise if Sunway is to propose it before 2013. Risks and concerns. i) delays in project launches; iii) new contracts secured in FY12 coming in below our target; and iv) country and macro risk. Forecasts. No change in our earnings projections as earnings contribution is expected to kick in from 2014 onwards. Maintain Market Perform. Due to the incremental value in our RNAV estimate, our FV is raised to RM2.42 (from RM2.30), based on 40% discount to RNAV. PER = 12x PER = 11x PER = 10x Net Relative Performance To FBM KLCI FBM KLCI Sunway Berhad Loong Kok Wen, CFA (603) 92802237 loong.kok.wen@rhb.com.my Please read important disclosures at the end of this report. Page 1 of 5
Table 2: SOP valuations Landbank Size (acres) GDV (RM mil) Equity interest NPV @ 10% (RM mil) Malaysia Sunway South Quay 52 3,893 60% 135.61 Sunway Velocity 22 2,000 50% 65.12 Sunway Damansara 18 826 60% 43.73 Sunway Semenyih 398 729 70% 29.55 Integrated Resorts 18 660 100% 42.23 Melawati 31 555 100% 33.82 Sunway Tower 1 1 240 100% 21.13 Casa Kiara 3 3 230 80% 15.34 Suria 14 60 100% 4.57 Taman Duta 3 120 60% 5.83 Penang 108 1,202 100% 106.06 Johor Iskandar 64 932 80% 39.61 Sunway Iskandar - Medini Living 691 12,000 60% 289.76 Ipoh 899 286 65% 10.26 Others 12 38 77% 1.78 Taman Equine 33 250 100% 14.48 Bangi 3 59 100% 3.77 Melawati 2 2 43 100% 3.30 Sg Long Balakong 111 277 80% 16.17 Mont Putra 163 156 100% 10.75 Overseas Opus, India 35 750 50% 14.94 MAK, India 14 134 60% 3.69 Guanghao, China 17 450 65% 17.89 Tianjin, China 102 5,000 60% 159.36 Australia 91 612 31% 10.08 Yishun, Singapore 7 851 30% 19.39 Tampines, Singapore 5 1,070 30% 24.39 Yuan Ching Rd, Singapore 5 828 30% 18.87 Sembawang, Singapore 0.77 75 100% 7.60 Sri Lanka 1 250 65% 3.96 Pasir Ris, Singapore 4.3 893 30% 25.70 Unbilled sales 167.90 Subtotal 1,366.64 Investment properties EBITDA Market value Book value Equity Net surplus (RM mil) (RM mil) (RM mil) interest (RM mil) Monash University Campus 13.4 200.0 200.0 100% 0.0 Sunway University College 9.5 153.0 153.0 100% 0.0 Sunway Hotel Georgetown 2.3 60.0 60.0 100% 0.0 Sunway Medical Centre 17.0 160.2 160.2 78% 0.0 Sunway Hotel Phnom Penh 3.0 17 17.0 53% 0.0 Sunway Hotel Hanoi 0.1 12.0 12.0 100% 0.0 Sunway Giza 1.1 42.7 42.7 60% 0.0 Subtotal 0 Other divisions Market value Book value FY12 EPS PE target Equity value surplus (RM mil) (RM mil) (sen) (x) (RM mil) Construction 0.12 14 1,326.15 36.6% Sunway REIT 1,113.3 882.0 231.26 Subtotal 1,557.41 Total 2,924.05 FY10 Proforma NTA 2,598.60 Total RNAV 5,522.65 Share base (mil) 1,292.51 No. of warrants 258.50 Warrants conversion @ RM2.80 723.80 Total SOP value 6,246.45 Enlarged share base (mil) 1,551.01 Fully diluted RNAV per share 4.03 Discount 40% Fair value (RM) 2.42 * Equity value surplus = equity value of the construction division based on PE minus estimated BV of Sunway Holdings to avoid double counting (the discounted PE target for the construction division is 8x) Source: Company, RHBRI Page 2 of 5
Fig 1: Location of Sunway Iskandar and E&O s land E&O s JV project with Khazanah/Temasek Source: Company Page 3 of 5
Fig 2: Location of Medini Source: Company Page 4 of 5
Table 3. Earnings Forecasts FYE Dec (RMm) FY10 FY11F FY12F FY13F Revenue 3,134.5 3,363.4 3,579.1 4,153.3 Gross Profit 1,058.1 1,194.0 1,322.1 1,599.9 EBIT 592.1 552.7 631.0 737.0 Interest income 27.0 29.1 29.1 30.6 Finance costs (101.2) (122.0) (103.8) (98.4) PBT 717.3 898.2 953.9 1,084.7 Exceptional item 363.2 0.0 0.0 0.0 Tax + minority interest (29.0) (601.8) (629.6) (705.1) Normalised net profit 325.0 296.4 324.3 379.7 Normalised EPS 25.2 22.9 25.1 29.4 Gross DPS 0.0 0.0 4.1 4.5 Dividend payout 0.0 0.0 16.4 15.3 Source: Company, RHBRI estimates IMPORTANT DISCLOSURES This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. 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It is generally for investors who are willing to take on higher risks. Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months. Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months. Industry/Sector Ratings Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be made available upon request. This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect. Page 5 of 5