Property 5 December 2012 KDN: PP 10251/07/2013(032736) Company Update Sunway Bhd SWB MK RM2.30 ADD (maintain) Price Target: RM2.55 ( ) RM 3.00 2.50 2.00 1.50 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Price Performance 1M 3M 12M Absolute -3.8% +2.7% -1.7% Rel to KLCI -0.9% +5.6% -9.0% Stock Data Issued shares (m) 1,292.5 Mkt cap 2,972.5 Avg daily vol - 6mth (m) 0.58 52-wk range (RM) 2.12-2.75 Est free float 38.3% NTA/share (RM) 2.31 P/NTA (x) 1.0 Net cash/(debt) (3Q12) (1,892.4) ROE (FY12E) 16.6% Derivatives Warr 2016 (WP:RM0.34, SP: RM2.80) Key Shareholders Tan Sri Jeffrey Cheah 49.5% GIC 12.2% Earnings & Valuation Revisions 12E 13E 14E Prev EPS (sen) 41.0 25.3 25.6 Curr EPS (sen) 41.0 25.3 25.6 Chg (%) - - - Prev target price (RM) 2.55 Curr target price (RM) 2.55 Isaac Chow (603) 2145 0412 cschow@affininvestmentbank.com.my Doubling Iskandar Malaysia land bank Sunway-IIB to jointly develop 779 acres of Iskandar Malaysia land Sunway announced that the group had on 4 December 2012 formed a JVCo with Iskandar Asset Sdn Bhd ( IASB ), a wholly-owned subsidary of Iskandar Investment Berhad ( IIB ) to jointly develop a mixed integrated project in Iskandar Malaysia. The JVCo, Harmony Impulse Sdn Bhd (60% owned by Sunway, 40% by IASB) will acquire from IASB two parcels of freehold land measuring a combined 779 acres for up to RM412.7m (RM12.16psf). Based on the preliminary plan on its drawing board, the JVCo will develop RM12bn worth of properties over a period of 17 years. Strategically located next to Medini, near Second Link Bridge The 779-acre land bank ( Pendas land ) is strategically located next to IIB s Medini project and near the Second Link Bridge. A river (Pendas River) separates the land into two parcels - Pendas North (413 acres) and Pendas South (366 acres). Importantly, the Pendas North land borders Sunway- Khazanah s Medini Zone F land bank, a 691-acre land bank acquired by Sunway-Khazanah JV in December 2011 to be developed into a RM12bn mixed development. The Sunway-Khazanah JV intends to launch the phase 1 of Medine Zone F project in end-2013. Attractive land cost, strong JV partner and favourable payment scheme We are positive on the business venture: (i) we are generally optimistic on the long-term prospects of Iskandar Malaysia; (ii) the land acquisition cost of RM12.16 psf is attractive, a discount to the RM13-210 psf range paid by peers for neighbouring land bank, due to less developed infrastructure and absence of the Medini incentives; (iii) after paying a 10% deposit, the balance will be paid in 10 instalments over a period of 10 years, thereby easing the cash flow and interest burden on Sunway; (iv) a strong JV partner in IIB, the strategic developer who is involved in the planning and execution of major catalytic projects in Iskandar Malaysia; and (v) post acquisition, Sunway will be among the largest land bank owners (after UEM Land) with over 1,470 acres of strategic land bank in Nusajaya. Maintain ADD with an unchanged TP of RM2.55 No change in our earnings forecast, ADD recommendation and TP of RM2.55, based on 40% discount to RNAV. While we are positive on the proposed business venture, we do not expect the JVCo to have any material impact on Sunway s bottomline over the next 2-3 years. We expect the impact to Sunway s share price to be muted for now and the re-rating will only kick in when the group reveals further details on the development masterplan and the project s launching pipeline. Earnings & Valuation Summary FYE Dec 2010 2011 2012E 2013E 2014E Revenue 3,134.5 3,738.9 3,706.8 3,892.4 4,450.8 EBITDA 672.1 461.9 375.9 397.1 425.1 Pretax profit 717.3 507.0 616.9 412.9 422.9 Net profit 688.2 369.7 529.7 327.0 331.5 EPS (sen) 53.2 28.6 41.0 25.3 25.6 PER (x) 4.3 8.0 5.6 9.1 9.0 Core net profit 325.0 325.6 303.2 327.0 331.5 Core EPS (sen) 25.1 25.2 23.5 25.3 25.6 Core EPS chg (%) 45.7 0.2 (6.9) 7.9 1.4 Core PER (x) 9.1 9.1 9.8 9.1 9.0 DPS (sen) - - 8.0 9.0 9.0 Dividend Yield (%) - - 3.5 3.9 3.9 EV/EBITDA (x) 6.6 9.6 11.7 11.4 10.9 Consensus profit - - 336.3 371.9 415.8 Affin/Consensus (x) - - 1.6 0.9 0.8 Important disclosures at end of report Page 1 of 7
Doubling Iskandar Malaysia land bank Sunway-IIB to jointly develop 779 acres of Iskandar Malaysia land Sunway announced that the group had on 4 December 2012 formed a JVCo with Iskandar Asset Sdn Bhd ( IASB ), a wholly-owned subsidary of Iskandar Investment Berhad ( IIB ) to jointly develop a mixed integrated project in Iskandar Malaysia. Sunway will manage the overall operations of the JVCo, Harmony Impulse Sdn Bhd. The JVCo s board of directors and development commettee will comprise nominees of Sunway and IIB based on a 60:40 ratio (as per the shareholding structure) while Sunway will appoint the management team and the project management company. The JVCo will acquire from IASB two parcels of freehold land measuring a combined 779 acres for up to RM412.7m (RM12.16 psf). The preliminary plan on the drawing board is that the JVCo will develop RM12bn worth of properties over a period of 17 years. Assuming a plot ratio of 1x, the average selling price of the properties launches will be approximately RM350psf. Fig 1: JVCo s shareholding structure Sunway 100% Khazanah Prasarana Johor EPF 60% 20% 20% Iskandar Investment Berhad ( IIB ) 100% Sunway City Iskandar Asset Sdn Bhd Sdn Bhd ( IASB ) 60% 40% Harmony Impulse Sdn Bhd ( JV Co ) Strategically located next to Medini, near Second Link Bridge The 779-acre land bank ( Pendas land ) is strategically located next to IIB s Medini project and near the Second Link Bridge. A river (Pendas River) separates the land into two parcels - Pendas North (413 acres) and Pendas South (366 acres). Importantly, the Pendas North land borders Sunway- Khazanah s Medini Zone F land bank, enabling Sunway to develop a more comprehensive, complementary project across its now enlarged land bank. To recap, Sunway had on 19 December 2011 formed a JVCo with Khazanah to acquire and develop a 691-acre land for RM745.3m cash (RM24.73 psf). The land bank has a total GDV of RM12bn, comprises of 65% residential and 35% of commercial properties. The Sunway-Khazanah JV intends to launch the phase 1 of Medine Zone F project, likely an integrated development with service apartments and retail lots in end-2013. The group has, however, yet to disclose the project s GDV and proposed selling prices. Page 2 of 7
Fig 2: Location map the Pendas land Fig 3: Ariel view on the Pendas land overseeing Second Link Bridge Page 3 of 7
Fig 4: Transacted price for Nusajaya / Medini land Date Acquirer Location Land area (acres) Attractive land cost, strong JV partner and favourable payment scheme We are positive on the business venture: (i) We are generally optimistic on the long-term prospects of Iskandar Malaysia. We believe that the strong Malaysia-Singapore G-to-G cooperation, integration in transportation system and rising private sector investments will underpin the region s economic growth over the longer term. While we are not overly enthusiastic about the immediate Iskandar Malaysia property market outlook due to low traffic flow, lack of vibrancy and potential nearterm oversupply, we expect the activities to pick up in 3-5 years with the commencement of more educational, tourism and manufacturing projects rollout creation of a local ecosystem; (ii) The land acquisition cost of RM12.16 psf is, in our view, attractive. The land price is at a discount to the RM13 psf-210 psf range (see figure 4) paid by peers for the neighbouring land bank due to its less developed infrastructure and absence of the Medini incentives; (iii) After paying a 10% deposit, the balance will be paid in 10 instalments over a period of 10 years, thereby easing the cashflow and interest burden on Sunway. Under the payment scheme, Sunway will only need to pay a RM24.8m deposit for its 60% stake, a manageable amount compared to its gross cash & equivalents of RM711.9m (0.6x net gearing) as at end- September 2012; (iv) A strong JV partner in IIB, the strategic developer who is involved in the planning and execution of some major catalytic projects in Iskandar Malaysia; and (v) Post acquisition, Sunway will be among the largest land bank owners in Nusajaya (after UEM Land) with over 1,470 acres of strategic land bank with a relatively low land cost of RM12-25 psf. Hence, the group has a slight cost advantage over peers and it is well positioned to benefit from the region s future growth trajectory. Acquisition price Land price psf of land area (RM) Land price psf of GFA (RM) Dec-12 Sunway-IIB Pedas (next to Medini) 779.0 412.7 12.2 na Dec-12 Fastrack-UEM Gerbang Nusajaya 270.0 223.5 19.0 na Nov-12 WCT Medini 18.1 99.5 126.1 36.0 Oct-12 Mah Sing Medini 8.2 74.7 209.4 34.9 Oct-12 Ascendas-UEM Gerbang Nusajaya 519.0 293.9-416.3 13.0-20.0 na Dec-11 Sunway-Khazanah Medini 691.0 745.3 24.8 na Jun-11 E&O-Khazanah-Temasek Medini 210.0 350.0 38.3 25.0 Maintain ADD with an unchanged TP of RM2.55 No change in our earnings forecast, ADD recommendation and TP of RM2.55, based on 40% discount to RNAV. While we are positive on the proposed business venture, we do not expect the JVCo to have any material impact on Sunway s bottomline over the next 2-3 years. We expect the impact on Sunway s share price to be muted for now and the re-rating will only kick in when the group reveals further details on the development masterplan and the project s launching pipeline. Page 4 of 7
Fig 5: Sunway s RNAV De scription Property Development Stake Acres GDV NPV @ 8% Surplus Sunw ay South Quay 60% 52 3,893 291.4 174.9 Sunw ay Velocity 50% 22 3,191 286.7 143.3 Damansara 60% 18 826 99.8 59.9 Integrated Resorts 100% 18 660 0.0 0.0 Melaw ati 100% 31 555 55.4 55.4 Sunw ay Tow ers KL 100% 1 240 26.5 26.5 Taman Duta 60% 3 120 14.3 8.6 Casa Kiara 80% 3 230 25.4 20.3 Suria 50% 14 60 2.8 1.4 Johor 80% 64 932 89.8 71.8 Penang Grp 100% 108 1,202 84.5 84.5 Semenyih 70% 398 729 60.1 42.1 Ipoh 65% 899 286 28.5 18.6 Taman Equine 100% 33 250 25.0 25.0 Bangi 100% 3 59 5.9 5.9 Melaw ati 2 100% 2 43 4.3 4.3 Sg Long 80% 111 277 26.0 20.8 Mont Putra 100% 163 156 14.5 14.5 Others (Malaysia) 77% 12 38 3.4 2.6 Yishun, Singapore 30% 7 851 82.2 24.7 Tampines, Singapore 30% 5 1,070 103.4 31.0 Yuan Ching Road, Singapore 30% 5 828 80.0 24.0 Sembaw ang, Singapore 100% 1 75 5.0 5.0 Tianjin, China 60% 102 5,000 249.4 149.7 Jiangyin, China 39% 17 454 10.1 3.9 Opus, India 50% 35 745 52.1 26.0 MAK, India 60% 14 181 14.5 8.7 Australia 31% 91 612 45.8 14.2 Sri Lanka 65% 1 250 20.1 13.0 Effective unbilled sales 179.4 Subtotal: 2,233 23,813 1,807 1,260.0 REIT Stake Book Value Mkt Value Surplus Sunw ay REIT @ RM1.55 per unit 36.7% 893.1 1,535.1 235.6 Subtotal: 235.6 Other business RMm Construction @ 12x FY13 PER 619.1 Other business @ 10x FY13 PER 608.5 Gain on disposal of Sunw ay Medical Centre 150.0 Subtotal: 1,377.6 Total 2,873.2 Shareholders' Fund @ Dec, 2011 2,983.3 Warrants conversion 723.8 RNAV 6,580.3 Enlarged shares base (m) 1551.0 Fully diluted RNAV per share (RM) 4.24 Discount (%) 40% Fair value per share (RM) 2.55 Source: Affin Page 5 of 7
Sunway Berhad FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Dec 2010 2011 2012E 2013E 2014E FYE 31 Dec 2010 2011 2012E 2013E 2014E Revenue 3,134 3,739 3,707 3,892 4,451 Grow th Operating expenses (2,462) (3,277) (3,331) (3,495) (4,026) Revenue (%) 13.3 19.3 (0.9) 5.0 14.3 EBITDA 672 462 376 397 425 EBITDA (%) (30.6) (31.3) (18.6) 5.6 7.1 Depreciation (80) (91) (100) (108) (116) Core net profit (%) 118.6 0.2 (6.9) 7.9 1.4 EBIT 592 371 276 289 310 Net int inc/(exp) (74) (56) (71) (63) (68) Profitability Associates' contribution 199 199 262 187 181 EBITDA margin (%) 21.4 12.4 10.1 10.2 9.6 Exceptional items - 22 150 - - PBT margin (%) 22.9 13.6 16.6 10.6 9.5 Pretax profit 717 507 617 413 423 Net profit margin (%) 22.0 9.9 14.3 8.4 7.4 Tax 280 (99) (68) (65) (69) Effective tax rate (%) (39.1) 19.5 11.1 15.7 16.3 Minority interest (309) (38) (19) (21) (23) ROA (%) 53.0 13.3 16.6 9.3 8.9 Net profit 688 370 530 327 332 Core ROE (%) 12.5 11.7 9.5 9.3 8.9 Core Net Profit 325 326 303 327 332 ROCE (%) 12.0 7.3 5.1 5.2 5.5 Dividend payout ratio (%) - - 19.5 35.6 35.1 Balance Sheet Statement FYE 31 Dec 2010 2011 2012E 2013E 2014E Liquidity Fixed assets 2,219 2,823 2,763 2,855 2,939 Current ratio (x) 1.5 1.3 1.4 1.2 1.2 Other long term assets 1,796 1,954 2,198 2,366 2,526 Op. cash flow 461.7 323.2 43.5 150.9 201.0 Total non-curr assets 4,014 4,776 4,961 5,221 5,465 Free cashflow 461.7 154.4 (156.5) (49.1) 1.0 Cash and equivalents 869 784 686 340 245 FCF/share (sen) 35.7 11.9 (12.1) (3.8) 0.1 Stocks 302 454 377 407 407 Debtors 1,143 1,096 1,431 1,542 1,542 Asset management Other current assets 698 705 472 588 676 Debtors turnover (days) 133.7 105.8 133.7 133.7 133.7 Total current assets 3,011 3,039 2,966 2,877 2,870 Stock turnover (days) 35.3 43.8 35.3 35.3 35.3 Creditors 1,380 1,931 1,754 1,892 1,892 Creditors turnover (days) 189.2 213.7 189.2 189.2 189.2 Short term borrow ings 505 301 400 400 400 Other current liabilities 68 28 28 28 28 Capital structure Total current liab 1,953 2,260 2,181 2,320 2,320 Net gearing (%) 56.4 49.6 41.5 43.1 43.1 Long term borrow ings 1,826 1,963 1,700 1,500 1,500 Interest cover (x) 9.1 8.3 5.3 6.3 6.3 Other long term liabilities 264 278 287 287 287 Total long term liab 2,090 2,241 1,987 1,787 1,787 Shareholders' Funds 2,596 2,983 3,410 3,620 3,835 Minority Interest 386 331 350 371 394 Quarterly Profit & Loss Cash Flow Statement FYE 31 Dec 3Q11 4Q11 1Q12 2Q12 3Q12 FYE 31 Dec 2010 2011 2012E 2013E 2014E Revenue 934.0 968.6 814.8 996.1 867.0 Profit before tax - 507 617 413 423 Operating expenses (834.2) (789.8) (729.4) (867.0) (736.5) Depreciation & amortizatio - 91 100 108 116 EBITDA 99.8 178.8 85.3 129.1 130.4 Working capital changes - 397 (202) (118) (88) Depreciation (22.7) (22.7) (24.9) (24.9) (24.9) Associates' contribution - (199) (262) (187) (181) EBIT 77.1 156.1 60.4 104.2 105.5 Others - (473) (210) (65) (69) Net int income/(expense) (18.2) (17.8) (18.6) (22.8) (19.4) Cashflow frm ops 462 323 43 151 201 Associates' contribution 56.7 1.6 42.9 111.6 56.1 Capex - (169) (200) (200) (200) Exceptional Items (24.8) 50.2 0.2 0.2 0.3 Disposal/(purchases) - - 310 - - Pretax profit 90.7 190.1 84.9 193.1 142.4 Others - (122) 17 19 21 Tax (18.7) (59.1) (18.5) (30.3) (32.4) Cash flow frm inv't 2,035 (291) 127 (181) (179) Minority interest (2.8) (7.2) (2.0) (8.5) (15.7) Debt raised/(repaid) - 908 (164) (200) - Net profit 69.2 123.8 64.4 154.3 94.3 Equity raised/(repaid) - - - - - Core net profit 94.0 99.3 64.2 77.6 94.6 Dividends paid - - (103) (116) (116) Others - (1,024) - - - Margins (%) Cash flow frm fin. (2,266) (116) (268) (316) (116) EBITDA 10.7 18.5 10.5 13.0 15.0 PBT 9.7 19.6 10.4 19.4 16.4 Free Cash Flow 462 154 (157) (49) 1 Net profit 7.4 12.8 7.9 15.5 10.9 Page 6 of 7
Equity Rating Structure and Definitions BUY Total return is expected to exceed +15% over a 12-month period TRADING BUY Total return is expected to exceed +15% over a 3-month period due to short-term positive development, but fundamentals are (TR BUY) not strong enough to warrant a Buy call. This is to cater to investors who are willing to take on higher risks ADD Total return is expected to be between 0% to +15% over a 12-month period REDUCE Total return is expected to be between 0% to -15% over a 12-month period TRADING SELL Total return is expected to exceed -15% over a 3-month period due to short-term negative development, but fundamentals are (TR SELL) strong enough to avoid a Sell call. This is to cater to investors who are willing to take on higher risks SELL Total return is expected to be below -15% over a 12-month period NOT RATED Affin Investment Bank does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation OVERWEIGHT Industry, as defined by the analyst s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL Industry, as defined by the analyst s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Investment Bank Berhad ( Affin Investment Bank ) based on sources believed to be reliable. However, such sources have not been independently verified by Affin Investment Bank, and as such, Affin Investment Bank does not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. 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Affin Investment Bank s research, or any portion thereof may not be reprinted, transmitted to, photocopied or reproduced in any form - sold or redistributed, directly or indirectly in whole or in part without the prior written express consent of Affin Investment Bank. This report is printed and published by: Affin Investment Bank Bhd (9999-V) A Participating Organisation of Bursa Malaysia Securities Bhd Chulan Tower Branch, 3rd Floor, Chulan Tower, No 3, Jalan Conlay, 50450 Kuala Lumpur. www.affininvestmentbank.com.my Email: research@affininvestmentbank.com.my Tel : + 603 2143 8668 Fax : + 603 2145 3005 Page 7 of 7