Sunway’s Cochrane development to see strong take-up

Analysts believe the new project will be well received given the success of Sunway Velocity and Velocity TWO


SUNWAY Bhd’s proposed transit-oriented mixed development on Jalan Cochrane, Kuala Lumpur, is expected to see strong take-up given the successes of Sunway Velocity and Velocity TWO, analysts said.

The conglomerate signed a sale and purchase agreement to acquire a 6.59-acre (2.66ha) freehold land at Jalan Cochrane from Boustead Holdings Bhd for RM233.4 million earmarked for a mixed development project.

RHB Investment Bank Bhd analyst Loong Kok Wen expects the new project to see a strong demand upon its launch in view that Tower C in Velocity TWO, launched in November 2020, is already 40% sold inclusive of bookings.

Loong said demand will be further boosted by progress made at the Tun Razak Exchange (TRX) with the completion of Exchange 106, Menara Prudential and HSBC Bank Malaysia Bhd’s headquarters.

“We are positive on Sunway’s latest land acquisition. The new land will sustain the company’s presence in the Cochrane area as the development of Sunway Velocity TWO is already towards the tail end.

“Land cost of RM813 per sq ft is considered attractive as it is much lower than the land cost for Velocity TWO. We believe the new project will be well received given the success of Sunway Velocity development so far,” she said in a note yesterday.

RHB maintained its ‘Buy’ call on Sunway with a slightly higher target price (TP) of RM1.95 from RM1.94, representing a 19% upside and 2% yield.

Its valuation comprises a 40% discount to revalued net asset value (RNAV) for the property business, 15 times price-to-earnings for the trading division and 32 times for the healthcare segment.

“We make no changes to our earnings forecast. The project is likely to be launched in one to two years, and hence earnings or billings will take time to kick in. Unbilled sales of RM2.4 billion and an outstanding construction orderbook of RM5.1 billion should underpin near-term earnings,” Loong noted.

MIDF Amanah Investment Bank Bhd analyst Jessica Low Jze Tieng said the research firm is slightly positive on the land banking exercise as the land is located directly opposite the Cochrane Mass Rapid Transit station and MyTOWN Shopping Centre.

Development on the land will comprise serviced apartments and a retail podium, with an estimated gross development value of at least RM1.15 billion.

“We expect minimal impact on Sunway’s balance sheet post the land acquisition as Sunway has a cash pile of RM4.6 billion as of financial year 2020 (FY20). We estimate net gearing to climb marginally to 0.26 time from 0.23 time post the land acquisition.

“We expect minimal earnings impact in the short term as we expect the project to take a few years to start contributing to the earnings. Hence, we make no changes to our earnings forecast for FY21 and FY22,” Low said in a note.

The research house maintained its ‘Neutral’ stance on the developer with an unchanged TP of RM1.55.

“Our TP is based on sum-of-parts valuation, and we maintain neutral on Sunway as we see limited catalysts to it in the near term,” she said.