Monday, April 25, 2011

Sunway City: Regional aspirations, Target Price : RM 5.10

April 25, 2011
Price Target: RM 5.10
Share price: RM 4.52


Hightlights
# Sizeable landbank in strategic areas in Klang Valley, Penang and Johor.
# Renewed focus on overseas expansion.
# Benefitting from asset reflation.
# Current share price is still below merger offer price.

Financial impact
# Impending merger with Sunway Holdings.
# Potential future Sunway REIT asset injections would unlock more free cash flow to grow land bank.
# New MRT line to benefit Bandar Sunway Semenyih.

Risks
1) Slow sales for certain projects, such as Vivaldi.
2) Abortion of the merger.

Rating
Initiate with a BUY
Positives:
Large landbank, strong branding and market presence.

Negatives:
Execution risk for merger.

Valuation
Price target of RM5.10 is based on general offer price from Sunway Sdn Bhd, which is 29% below our RNAV estimate of RM7.15 per share.

Merger offers investors exposure to enlarged entity with higher liquidity, reduced conflict of interest (as Sunway Holdings also has property projects), better corporate governance (GSIC will be a major shareholder of the enlarged entity), and most importantly, potential of unlocking hidden values postmerger. BUY


Source: HLeBroking

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