Analysts have positively evaluated Sunway Bhd’s (KL) acquisition of a 17.58-acre freehold land in Taman Taynton, Kuala Lumpur for RM320 million, highlighting the attractive pricing and strong development potential. This acquisition is poised to enhance Sunway’s gross development value (GDV) and long-term earnings.
According to CIMB Securities, this acquisition will increase Sunway’s GDV to RM58 billion with a planned RM3.2 billion development project, providing a solid foundation for the company’s earnings over the next 15 years.
“Backed by an indicative GDV of at least RM3.2 billion, the project is expected to yield pre-tax margins of 15%-18%,” said CIMB Securities in a note. They have maintained their “buy” recommendation for Sunway with an unchanged target price of RM5.
Impact on Sunway’s Financials
Despite the acquisition, the company’s net gearing ratio will experience only a slight increase from 44% to 46%, based on Sunway’s financial standing as of June 30, 2024. Analysts view this as a manageable shift given the long-term revenue potential of the development.
Similarly, Hong Leong Investment Bank (HLIB) Research expressed optimism about the acquisition, citing the “attractive acquisition price” and a land cost-to-GDV ratio of 10%. With good highway access, an MRT station, and surrounding amenities, the land is expected to generate high demand.
HLIB raised Sunway’s target price from RM4.51 to RM5.15, noting that the group’s net gearing will rise slightly to 55.3% after the acquisition.
Projected Earnings from the Development
Assuming a RM3.2 billion GDV over an 11-year development period, analysts project the new development could yield an annual net profit of RM52.4 million, starting from FY2027. Sunway is expected to deliver annual earnings of RM727.4 million for FY2024, RM736.8 million for FY2025, and RM960.3 million for FY2026.
TA Securities Bhd also deemed the acquisition price to be fair and expressed confidence in the project’s potential to attract strong market interest, given its wellness-centric retail podium and Sunway’s reputation in healthcare and wellness services.
Strategic Benefits of the Development
The development will integrate serviced apartments with a wellness-focused retail podium, including health and wellness clinics, which aligns with Sunway’s successful track record. Additionally, the future direct access to MRR2 (Middle Ring Road 2) is expected to boost the project’s connectivity, making it even more attractive to potential buyers.
TA Securities maintained its “buy” rating for Sunway, with a target price of RM4.76.
Stock Performance
At the noon market break, Sunway’s stock price rose by 1% to RM4.17, giving the group a market capitalisation of RM23.89 billion. Year-to-date, the stock has more than doubled from RM2.06.
Conclusion
With robust development plans, strategic location benefits, and increasing demand for high-quality residential projects, Sunway’s land acquisition in Taman Taynton is set to contribute significantly to the company’s long-term earnings and growth, reinforcing its position in the Malaysian property market.
