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Monday, September 22, 2014

Sunway’s relisting of construction unit gets CIMB Research’s thumbs-up


KUALA LUMPUR: CIMB Equities Research is upbeat on Sunway Bhd’s proposal to relist its construction arm and described it as a positive surprise.
It said on Monday while the listing exercise would further unlock value, the main appeal is the potential special cash dividend distributable to existing Sunway shareholders.
“We estimate a base-case of 20 sen to 30 sen a share, which translates to an attractive yield of 6%-9% excluding normal dividends. This will materialise in FY15 given the IPO timing of 2Q15,” it said.
CIMB Research estimated a 5%-6% dilution to FY15-16 EPS arising from the almost halved stake in the listed company, but dilution to realised net asset value (RNAV) is largely offset by the proceeds raised.
“We raise our RNAV-based target price (from RM3.63 to RM3.85 – which is an upside of 14.6% from its last traded price of RM3.63) as we update for SunReit's market cap and land values (still based on a 20% discount). Maintain Add. The special cash dividend is the key catalyst,” it said.
Last Friday, Sunway Bhd announced plans to re-list Sunway Construction. The deal structure comprises a dividend-in-specie of the listed company's shares to Sunway shareholders and an offer-for-sale (OFS).
Post IPO, Sunway Bhd's stake in the listed company Sunway Construction Group (SCG) will decline from 100% to a minimum of 51%. IPO details should be available in 1Q15 and listing is targeted for 2Q15.
A "substantial portion" of the listing proceeds will be "rewarded" to Sunway's existing shareholders as special cash dividends, Sunway Bhd said.
CIMB Research pointed out the IPO would enable Sunway to unlock the value of its construction arm.
“Based on our sensitivity analysis, Sunway Bhd should be able to pay out a minimum of 20-30 sen/share in special dividends, on top of the normal dividends of 10 sen per annum.
“For the listed company Sunway Construction Group, it will be profiled as a pure contractor with an outstanding order book of RM3.4bil, with growth driven mainly by domestic jobs.  Construction constitutes 60% of Sunway Construction Group's net profit while precast concrete products make up the balance,” it said. 

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