Kenanga Investment Bank Research has upgraded Sunway Bhd to “Outperform” from “Market Perform” following the group’s successful acquisition of a prime mixed-development site in Singapore, citing stronger long-term earnings prospects and improving valuations across the Sunway group.
The research house also raised its sum-of-parts (SoP) target price for Sunway to RM5.78, reflecting contributions from the latest Singapore land acquisition as well as higher valuations for Sunway REIT and Sunway Construction Group.
Sunway, through its 30%-owned joint ventures, recently secured a 99-year leasehold site at Bayshore Drive, Singapore, for S$2.128 billion (RM6.74 billion) in a tender awarded by the Urban Redevelopment Authority (URA).
According to Kenanga, the acquisition marks Sunway’s second government land sale award in Singapore this year, following the S$751 million River Green Valley (Parcel C) project secured in June.
The research firm said the pace of acquisitions is consistent with Sunway’s strategy of securing between one and three development sites annually in Singapore.
Kenanga estimates the Bayshore project will contribute an effective gross development value (GDV) of RM3.8 billion attributable to Sunway, equivalent to around 6% of the group’s existing effective development pipeline of RM60.5 billion as at June 30.
The project will be developed by a consortium comprising Sunway MCL Land, Frasers Property, Japan’s Sekisui House and Lum Chang.
The residential component is expected to comprise around 1,280 housing units, while the consortium will also retain exposure to the retail mall component as an investment property.
Strategic integrated development
Kenanga highlighted the project’s strategic location within the new Bayshore precinct, noting that it will be the only integrated transport, residential and retail development in the area.
The site will have direct connectivity to a station on Singapore’s Thomson-East Coast MRT Line, enhancing its long-term attractiveness.
Sunway’s consortium submitted a winning bid of S$1,323 per square foot, about 5.8% higher than the second-highest bid, which Kenanga described as being within the normal premium range for successful government land tenders in Singapore.
Based on an estimated S$4 billion GDV, the acquisition cost represents about 52% of the project’s expected development value, which the research house considers reasonable for Singapore’s property market.
Kenanga projects the development could generate a pre-tax profit margin of approximately 12%, translating into around RM340 million in cumulative pre-tax earnings attributable to Sunway over the project’s development lifecycle.
Limited impact on gearing
The research house estimates that if 30% of the acquisition is funded through equity, Sunway’s proportionate equity contribution would amount to approximately RM610 million.
This is expected to raise the group’s net gearing only modestly, from 0.79 times to 0.84 times, which Kenanga believes remains manageable.
Earnings contribution expected from FY2029
Kenanga noted that the project is expected to contribute positively to Sunway’s earnings beyond its current forecast horizon, in line with the company’s guidance that earnings contributions are likely to commence from financial year 2029 onwards.
The research house said it will monitor the project’s launch timeline before making any changes to its earnings forecasts, with a potential launch anticipated in calendar year 2027.
In addition to the Singapore project, Kenanga said its higher target price also reflects improved sentiment towards Sunway Construction and Sunway REIT, with the latter remaining its preferred real estate investment trust within the sector.
