- Sunway Bhd (Sunway) announced that it is
selling Sunway Medical Centre to its 36.7%-associate Sunway REIT for
RM310mil.
- We are positive on this deal because:-
(1) At
RM310mil, Sunway is selling at a favourable cap rate of 6.13% vis-a-vis 7% for
recent hospital transactions for Al Aqar.
(2) Sunway
would yield a gain of RM149mil or about 12sen/share.
(3) Taking
out the borrowing attached to the hospital amounting to RM53.3mil, Sunway’s net
gearing is expected to be reduced to below 0.4x, with savings of up to RM2.4mil
in interest expense annually.
- Further, the sale of this would keep intact
our earnings estimates for FY12F. Recall that Sunway actually missed our
estimates for 1HFY12, covering just about 40% of our forecast. Should the group
would not be able to recognise sufficient progress billings, the gain on the
disposal of this hospital would be able to more than offset the shortfall.
- However we believe there may not be any
special dividends to be paid out to its shareholders, but the proceeds would be
used to fund its ongoing and future projects.
- From a valuation standpoint, Sunway Bhd
appears cheap, currently trading at FY13F PE of 8x supported by clear earnings
visibility in the near to medium term.
- While there is deep value and clear earnings
visibility – (1) currently trading at 8x FY13F earnings and attractive 35%
discount to its sum-of-parts value, (2) strong unbilled sales and construction
order book of close to RM6bil – the company lacks re-rating catalysts in the
near to medium term.
- We reiterate our HOLD recommendation on
Sunway, with our fair value kept at RM2.60/share – based on a 25% discount to
our sum-of-parts value of RM3.50/share.
Source: AmeSecurities
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