Sunway’s full ownership of Sunway South Quay garners positive reactions

KUCHING: Sunway Bhd’s ( Sunway) full ownership of Sunway South Quay Sdn Bhd ( Sunway South Quay) has garnered positive reactions from analysts given that this will be a boost to the group’s earnings.

In a filing on Bursa Malaysia, Sunway revealed that subsidiary Sunway Lagoon Sdn Bhd (Sunway Lagoon) had on October 24, 2017 entered into a share sale agreement with Employees Provident Fund (EPF) where Sunway Lagoon agreed to acquire 50,000 ordinary shares held by EPF in Sunway South Quay.

This represented 20 per cent of the share capital of Sunway South Quay, at a purchase consideration of RM136.65 million and Sunway will also repay on behalf of Sunway South Quay, a sum of RM73.35 million in cash towards the settlement of the Musyarakah Capital invested by EPF in Sunway South Quay.

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) was positive on this acquisition as full ownership of Sunway South Quay will increase future earnings contribution of the project to Sunway’s earnings.

As a mixed development, Sunway South Quay is located in the integrated township of Sunway City with remaining gross development value (GDV) of RM3 billion.

“The increased stake in Sunway South Quay is also an affirmation of Sunway’s confidence and commitment to the long-term prospects of Sunway South Quay,” the research arm said.

It added that the key upcoming projects of Sunway South Quay include Sunway Bayou ( formerly known as Sunway GEO Residences 3), Sunway GEO Tower (commercial office tower) and Sunway GEO Avenue (retail).

MIDF Research noted that Sunway intends to fund the acquisition via bank borrowings and internally generated funds.

Impact on balance sheet from the acquisition is expected by the research arm to be minimal.

MIDF Research estimated net gearing of Sunway to be lifted marginally to 0.37- fold from 0.32-fold as at end June 2017 after taking full ownership of Sunway South Quay.

Likewise, earnings impact from the acquisition is also expected to be minimal, hence the research arm maintained its earnings estimate for financial year 2017-2018 forecast (FY1718F).

All in, MIDF Research maintained ‘neutral’ on Sunway with a revised target price of RM1.84 per share.

“Our target price has been revised from RM1.83 to RM1.84 after factoring full ownership of Sunway South Quay,” it said.