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Wednesday, March 27, 2013

Sunway re-rated based on its RM30bil Iskandar development


PETALING JAYA: The 1,770 acres with a gross development value (GDV) of RM30bil Sunway Bhd owns in the Iskandar region and its plan to pay out dividends semi-annually are deemed as catalysts, UOB KayHian Research says.
In a report, the research house revised Sunway's target price to RM3.48 from RM2.98 as it removed the 10% discount to sum-of-the-parts. The new target price implied a 12 times 2014 forecast price-to-earnings (PE), which was slightly higher than its historical mean PE of 11 times, and remained a “buy” rating.
The research firm said: “Given that Sunway Iskandar makes up almost 30% of Sunway's revised net asset value, the market will eventually recognise Sunway as one of the key proxies to the Iskandar theme. We believe that re-rating should continue when earnings contribution begins in 2014.”
It also viewed the new dividend policy positively.
Sunway group chief financial officer Chong Chang Choong said in an e-mail reply to StarBiz: “Dividends will be paid on a semi-annual basis with effect from financial year ending Dec 31, 2013 onwards.”
For the financial year ended Dec 31, 2012, the company declared a final, single-tier dividend of 6 sen per share which will be paid on April 30.
Based on its closing price at RM2.79 yesterday, the yield worked out to be 2.15%.
Meanwhile, UOB KayHian Research expected a 2.5% dividend yield for 2013.
Chong said the company had a dividend policy of paying out at least 20% of its core profit after tax and minority interest every year as dividends to its shareholders.
“We are comfortable with our current dividend policy as it provides the group with the flexibility to pay a minimum dividend payout and it can be increased accordingly if the group's prospective free cash flow is stronger.
“This dividend policy will not impede the group's expansion plans,” he said.
UOB KayHian said the proposal indicated that the company was in a favourable cash position despite possibly needing high capital expenditure for its development in Iskandar.
The research unit also said Sunway Iskandar's masterplan included interesting “township components” such as Education Park, Eco Theme Park, Lifestyle Malls, Medical Park, Business Park and an Eco Marina.
“We believe the re-rating will continue as the Iskandar theme has only warmed up'. We expect positive sales response from their maiden launch of Sunway Iskandar in the fourth quarter of 2013,” UOB KayHian said.
The research house expected Sunway's property sales in Iskandar to contribute 25% and 32% of its initial property earnings forecast for 2014 and 2015 respectively.
In a filing with Bursa, Sunway announced that it had gotten the green light from the Securities Commission to establish a medium term note programme of up to RM1bil in nominal value via its subsidiary.

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