Tuesday, October 11, 2011

Sunway: Price Target: RM3.12

12 October 2011
Price Target: RM3.12
Share price: RM2.06

Double bagger

# Sunway has been awarded an RM308.9m contract for the construction of an integrated media studios facility known as Pinewood Iskandar Malaysia Studios. The project is to be completed by May 2013.

# The Group has also won a 99-year land lease tender from the Urban Redevelopment Authority of Singapore (URA) for the development of Jalan Loyang Besar/Pasir Ris Rise
(known as Parcel 826) for S$140.96m (~RM345m). The development period is for 60 months and the Group has a 30% stake in this project.

# The Iskandar Studio award brings YTD jobs win for Sunway to ~RM1.27bn, leaving just RM230m for the Group to achieve its annual order book replenishment rate of
RM1.5bn. The latest order also implies a stronger presence by the Group in the Iskandar region, hence may potentially benefit from future developments in this corridor.

# Overall, the Group’s outstanding order book stands at ~RM2.7bn, translating to 2.5x FY10’s revenue.

# The latest Singapore land award marks the 7th successful bid through the JV with Hoi Hup Realty Pte Ltd which began in 2008. Parcel 826’s GFA is 17,274.2 sq m, with a maximum GFA of 36,276 sq m (plot ratio of 2.1x).

# This translates to a land acquisition cost of S$3,886/sq m. Sunway’s bid is just 1.5-3% higher than the second and third closest rival bids.

# The development is for ~355 condominium units and by assuming 880 sq ft for a unit (after adjusting for 20% setback) and an ASP of S$1,200/sq ft, this development has a minimum potential GDV of S$375m.

# Execution risk; Regulatory and political risk (both domestic and overseas); Rising raw material prices; and unexpected downturn in the construction and property cycle.

Unchanged as the latest construction award is already part of our annual contract wins assumption of RM1.5bn, whereas development for Parcel 826 should contribute
materially after FY13 onwards.

Rating - BUY
Maintain BUY as Sunway poses deep values and is still trading at a discount to its peers.

Target Price of RM3.12 based on SOP valuation maintained.

Source: HLIB Research

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