May 10, 2010

SUNWAY CITY

Our revised TP is also supported by our supplementary RNAV valuation of RM6.36 (previously RM5.77). 

A big pay day for Sunway City
Sunway City announced it will inject its 8 investment properties into Sunway REIT for RM3.7bn which will be satisfied by RM2.7bn in cash and 1,025m units in Sunway REIT. After settlement with other joint owners of the assets, the net cash proceeds of RM1.2bn will effectively cover all Sunway City’s existing debts.  We believe Sunway City will reinvest the cash but do not rule out possibility of a special dividend. We rate Sunway City as one of our  top picks for the property sector. At current market capitalisation, investors are not only paying 21% discount for the net cash proceeds and 38.25% in Sunway REIT valued at RM2.2bn but also get all its property development landbank for free. We raise our TP from  RM4.33 to RM5.00 based on 14x P/E which is one standard deviation higher than average forward P/E of 10x. We believe this is justified given (1) 18.7% EPS CAGR over next 3 years, (2) unlocking hidden value of investment properties, and (3) potential upside  from further expansion. Our revised TP is also supported by our supplementary RNAV valuation of RM6.36 (previously RM5.77). 

by ECMLibra