GIC unlikely to exercise put option for Sunway Healthcare

Sunway is confident it will be able to achieve the minimum IPO valuation for Sunway Healthcare


SUNWAY Group Bhd’s long term growth plans are unchanged despite the Covid-19 pandemic, said RHB Investment Bank Bhd in a note yesterday.

Its analyst Loong Kok Wen said the new target price of RM2.02 for the group reflects its revisions to Sunway’s earnings estimates and valuation for Sunway Healthcare Holdings Sdn Bhd.

“Management is confident Singapore’s sovereign wealth fund GIC Pte Ltd will not exercise the put option for Sunway Healthcare,” said Loong.

Sunway’s application for a digital bank licence and the purchase of a majority stake in Multicare Health Pharmacy Sdn Bhd, are part of the group’s long-term growth strategy. Loong maintained a ‘Buy’ call on the company.

“At our recent meeting with management, CFO Chong Chang Choong reiterated the firm is not likely to exercise the put option which would enable it to achieve a minimum US dollar-denominated internal rate of return (IRR) of 18.5%.

Sunway is confident it will be able to achieve the minimum IPO valuation for Sunway Healthcare,” Loong noted.

Given the healthcare company’s growth prospects and expansion plan, Sunway’s management aims to reach a valuation of RM8 billion-RM10 billion upon its listing in six to eight years.

“The staggered payment from GIC (totalling RM750 million) would also mean a lower average cost of capital, as the commitment to fulfil the 12.5% IRR will then be “delayed”. Sunway will be able to leverage on the current low interest rates and the scheduled cashflow from GIC to undertake more borrowings now, if needed,” Loong added.

On the matter of Sunway’s digital bank bid, the group’s strong database is expected to support the digital bank licence application.

According to media reports, Sunway, Tencent-backed Linklogis Inc and Bangkok Bank plc have jointly applied for a Malaysian digital bank licence.

“Management did not elaborate on plans for digital banking (results will only be announced in the first quarter of 2022/1Q22) but Chong indicated Sunway has a wide database — on the number of visitors clocked in its shopping malls, hotels, theme parks, hospitals, workers in its offices and students in its educational institutions,” the analyst wrote.

Currently, Sunway has an online remittance firm and it is also a major shareholder of Credit Bureau Malaysia.

The report has raised Sunways property sales target for the year to RM2.2 billion (from RM1.6 billion). The group has hit RM1.6 billion in property sales in the first half of 2021 (1H21) — two-thirds from its Singapore projects.

In Malaysia, Sunway Belfield’s project take-up rate was 87% for Tower One and 65% for Tower Two as at end-June. It also recently soft launched Sunway D’Hill.

“Despite the pandemic, management still aims to launch other projects in the pipeline, including Sunway Artessa (gross development value (GDV): RM320 million) and Velocity Two Tower D (GDV: RM390 million),” said Loong.

She noted the impact of the Full Movement Control Order (MCO) should be less significant versus MCO 1.0 in 2Q20.

“However, if the lockdown is extended, the earnings impact would be more severe in 3Q21. The 4Q21 should see much stronger pent-up demand as the country’s vaccination rate should have reached 60%-65% by then,” the report forecast.