HLG: 28 May 2008 SunCity

HLG: 28 May 2008 SunCity - 9months results in-line, re-iterate BUY


Sunway City Berhad BUY



Price target RM4.80



Share price at 27 May RM3.10



Investment summary


Annualized 9M results were in-line with consensus and HLG full-year estimates, supporting our BUY call on the stock. SunCity’s share price had been depressed due to slow down in property launches, despite positive earnings and newsflow. We think the recent -40% share price correction offers an attractive entry point: (1) 3-year 24% EPS CAGR from a shift into high-end property development; (2) SunCity is the cheapest big-cap developer, at 9x CY08 PE and 1x P/NTA; (3) the upcoming SunCity REIT spin-off could raise RM900m cash (RM1.90/ share), and provide an avenue for unlocking future asset value. We are neutral on Malaysia property sector, with preference on companies with prime land bank/high end property developers. We believe the foreign money/petrodollar will continue to fuel demand, as KL property prices are still at a substantial valuation discount to HK/Singapore.



Laggard large cap play

9M results were largely in-line. SunCity’s share price has fallen 40% YTD, and we think is an ideal laggard play given positive near-term newsflow regarding the listing of its REITs. At 7x FY6/09 PE SunCity is the cheapest big cap property developer.