Affin Investment’s Buy on SunCity

AFFIN Investment Bank Research has maintained its Buy call on Sunway City Bhd (SunCity) with a target price of RM6.88 based on its projects and the company’s proposed Real Estate Investment Trust (REIT) to generate further interest in the counter.

“We are raising our fully diluted revised net asset value (RNAV) target from RM5.80 to RM6.88 by increasing our valuation of the investment properties which will be placed under an upcoming REIT by 16% to RM3.7 billion, lowering our cap rate from 7% to 6%,” the research house said.

“We maintain our Buy call with an upgraded fully diluted RNAV-based target price of RM6.88, which implies a CY08 price over earnings (P/E) of 18 times,” it said.

Plans were in the pipeline for SunCity to secure another property project with a gross development value (GDV) of about RM700 million in Hyderabad, India. The project is at a “very advanced” negotiation stage with a joint venture (JV) partner. Details would be announced within the next eight months.

Affin Investment said SunCity could record significant earnings should there be a 50: 50 JV arrangement and a 30% pre-tax margin over a three-year development.

“This project could add RM26 million annually or 13% of our FY09 net profit forecast. Until this project is bagged and details provided, we maintain our forecast,” it said.

SunCity currently has two projects with a combined GDV of RM1.8 billion, and is looking to expand its landbank with a GDV potential of RM2 billion annually. It was also exploring markets in India, Vietnam and China.