Maybank Investment Bank (Maybank IB) is positive on Sunway’s latest JDA in the Batu Kawan area, Penang mainland, as it allows Sunway to tap into the current strong demand for industrial properties in Penang.
Additionally, the new industrial park will help Sunway diversify its revenue base and expand its exposure in the industrial property segment.
The project, which has an e.GDV of MYR3.5b, should start contributing to the bottom line by 2026 onwards.
Maybank IB maintains their earnings forecasts on Sunway, MYR1.92 TP (0.8x FY24E PBV) and issues a HOLD rating.
Buying industrial land from PDC Sunway’s 70%-owned subsidiary, Umech Land S/B, has entered into a joint development agreement (JDA) with Penang Development Corp (PDC) to specify each party’s rights and obligations regarding the development of 559 acres of industrial land in Batu Kawan, specifically Batu Kawan Industrial Park 2.
Under the JDA, PDC, which is contributing the land, shall be entitled to a land value of MYR646m (MYR26.5psf) payable on deferred payment over four years while Umech Land, as the developer, will undertake the development at its own cost.
Positive on the deal
Maybank is positve on the deal for two reasons: i) fair pricing, with a total land cost-to-GDV ratio of 18%. The land cost of MYR26.5psf is also lower than the asking prices in the surrounding area, which range from MYR28- 38psf. This can be attributed to its relatively larger land size (over 500 acres) and 2) its strategic location. The land is located adjacent to the existing matured Batu Kawan industrial park and is well-positioned to benefit from the increasing demand for industrial properties in the north.
Potential impact on earnings
The new project has an estimated GDV of MYR3.5b. Assuming a pretax margin of 15% and 8-year development period, the new industrial project is expected to churn out an annual net profit of MYR50m (+1sen EPS). Postland acquisition, Sunway’s total landbank/GDV will increase by 17%/6% to 3,871 acres/MYR57b.
