Sunway’s first land deal of the year at 24 per cent premium
KUCHING: Sunway Bhd’s (Sunway) first land deal of 2017 in Klang Valley is at a premium of 24 per cent over Ibraco Bhd’s (Ibraco) previous 2015 land deal in the same area, according to calculations from the research arm of Kenanga Investment Bank Bhd (Kenanga Research).
To recap, details of the land deal was announced through a filing on Bursa Malaysia last Friday where it was specified that Sunway would undertake an integrated development project through Austral Meridian Property Sdn Bhd (AMP) on the parcels of leasehold land measuring 8.45 acres owned by AMP and located in Klang Valley.
The deal would be carried out through a joint-venture structure formed from a subscription and shareholder’s agreement (SSA) entered by Sunway’s wholly-owned subsidiary, Sun City Sdn Bhd (Suncity), AMP, Low Peng Kiat (LPK) and CCRSC Property Sdn Bhd (CRSC).
Sunway is expected to acquire majority share of 50 per cent and 1 share in AMP for a total amount of RM228.2 million which implies a land cost of approximately RM886 per square feet (psf).
Compared to Ibraco’s previous 2015 acquisition of land within the area which transacted at RM877 psf, this price tag seems fair
However, as there is a put option from sellers where Sunway may own up to 70 per cent of AMP in 8 years’ time, Sunway’s management has guided that they would be required to pay a total of RM281.2 million should this happen.
Based on these figures, Kenanga research has estimated that this would work out to a cost of RM1,091 per square feet (psf) which represents a 24 per cent premium over Ibraco’s previous land deal.
Additionally, with the project’s gross development value (GDV) estimated at RM1.46 billion this would translate to a land cost to GDV ratio of 20 per cent which is on the steep side.
“Its impact to net gearing is minimal at present but expected to increase to 0.43 fold from Sunway’s 0.41 fold in the third quarter of 2016,” guided the research arm.
Despite this deal being at a premium, the research arm is overall neutral on the deal given the landbank’s prime location and its strategic location next to Sunway’s Velocity and will also be making no changes to its FY16-17E earnings estimates of RM485 to RM490 million as potential contribution from the project would only commence earliest by FY18 onwards.
“That said, we are still confident with Sunway’s ability in delivering sturdy performance for the year premised on its strong unbilled sales of RM1.8 billion with two year visibility, a robust outstanding orderbook of RM4.8 billion that provides two to three years’ visibility and other divisions that has been generating decent growth over the years,” said the research arm.