1 September 2010

PP 7767/09/2010(025354)
RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Co mpa ny Updat e
MARKET DATELINE 1 September 2010

Sunway City Share Price

Fair Value
:
:
RM3.88
RM5.45
Aggressive Launches of New Properties Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (SUNCITY; Code: 6289) Bloomberg: SCITY MK

Net Net
FYE Turnover Profit# EPS# Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
June (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009** 1,067.3 150.0 31.9 13.9 12.2 - 3.7 0.8 6.9 53.4 2.2
2010f 902.7 163.5 34.8 9.0 11.2 35.2 3.1 0.8 7.2 Net cash 9.3
2011f 998.8 181.7 38.7 11.1 10.0 42 8.2 0.7 7.5 Net cash 2.2
2012f 1,110.9 203.8 43.4 12.2 8.9 52.3 7.9 0.7 7.9 Net cash 2.6
Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC #normalised **annualised * Consensus Based On
IBES

♦ RM1.76bn and RM2.6bn worth of new launches for 2010-2011. Following Issued Capital (m shares) 469.9
Suncity’s targeted new launches of RM1.76bn for 2010, management plans to Market Cap (RMm) 1,823.4
put RM2.6bn GDV worth new projects into the market next year. These include: Daily Trading Vol (m shs) 0.1
(i) South Quay condo and commercial component; (ii) Melawati garden villas; 52wk Price Range (RM) 2.88-4.28
Major Shareholders: (%)
(iii) Sunway Velocity service apartment; and (iv) Overseas projects – Jiangyin
Tan Sri Dato’ Seri Dr 40.3
and Tianjin SSTEC project. New sales have been strong since late last year, and Cheah Fook Ling
it continued to replenish unbilled sales, which stood at RM743m as at Jun 2010, Government of Singapore 21.4
Investment Corporation
compared to RM630m in March 2010. Considering the aggressive launches of
new properties in the pipeline, we believe earnings growth for the property
development division will be able to sustain over the next five years. FYE Dec FY10 FY11 FY12
EPS chg (%) - - -
♦ Continued expansion in property investments. After the injection of eight Var to Cons (%) (1.2) (8.0) (17.1)
properties into Sunway REIT, Suncity is left with a few properties in its property
PE Band Chart
investment portfolio. To re-build its recurring income sources (apart from the
REIT’s contribution to associate income), Suncity will construct six new
PER = 11x
commercial properties, including (i) Sunway SOHO and office suites; (ii) The PER = 9x
Pinnacle; (iii) Sunway Velocity Shopping Mall; (iv) Sunway Monash University PER = 7x
PER = 5x
Residence; (v) Sunway Medical Cancer Centre; and (vi) Lost World Hotel in
Tambun. Given a typical construction period of three years, we estimate that,
these properties will only start their rental contribution in 4-5 years time.

♦ Plenty of room to gear up for landbank replenishment. Following the

listing of REIT, Suncity will be in a net cash position. This provides ample Relative Performance To FBM KLCI
capacity for the company to gear up to fund the construction of the six new
property assets and new landbank acquisitions. Indeed, Suncity is likely to seal
two deals in 2H2010. We maintain our balance sheet forecast for now, until the
FBM KLCI
company makes announcements on its debt funding for landbank acquisitions.
Sunway City
♦ Forecasts. Unchanged.

♦ Risks. The risks include: 1) competition from peers; 2) delays in launches and
approvals; 3) rising raw material prices; 4) imposition of cap on mortgage rate;
and 5) country risks.

♦ Investment case. We adjust our RNAV estimates to include Sunway Giza and
Sunway Hotel Hanoi (acquisition completed in June 2010) as investment
properties, and contribution from a new Penang land and Tianjin Eco City to Joshua Ng
projects DCF. As such, our fair value is raised to RM5.45 from RM5.20, based (603) 92802237
joshuang@rhb.com.my
on an unchanged 15% discount to its RNAV of RM6.41/share. Maintain
Outperform.

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 1 September 2010

♦ RM1.76bn and RM2.6bn worth of new launches for 2010 and 2011. Following Suncity’s targeted new launches of
RM1.76bn for 2010, management plans to put RM2.6bn GDV worth of new projects into the market next year. These
include: (i) South Quay condo and commercial component; (ii) Melawati garden villas; (iii) Sunway Velocity service
apartment; and (iv) Overseas projects – Jiangyin and Tianjin SSTEC project.

♦ Highlight on Tianjin SSTEC. We believe the Sino-Singapore Tianjin Eco-City (SSTEC) project will be the key highlight
for next year. The project is Suncity’s second venture into China after its Jiangyin project, jointly developed with other
top-notched developers in Asia – Keppel Land from Singapore, Shimao from China, Mitsui Fudosan from Japan, Far Glory
from Taiwan etc. Suncity’s Phase 1 for the project is scheduled to be launched in 2H11. The development will have a
GDV of RM600m, comprises high-rise residences (85%) and commercial component (15%). Selling price for the condo
units will be around RM500 psf. As for commercial properties, selling price will start from RM600 psf. The development is
expected to have fast cash collection due to the general practices on cash collection in China – 30% upon signing of SPA
and end financier is expected to release full payment within 30 days of executing the loan agreement. From our recent
meeting with management, we understand that Keppel, Mitsui and Shimao have launched their respective phases. Sales
for these developers are good, particularly the smaller units. As Suncity’s development will have larger number of
smaller units, we think take-up will be encouraging.

♦ Unbilled sales grew to RM743m. New sales have been strong since late last year, and it continued to replenish
unbilled sales, which stood at RM743m as at Jun 2010, compared to RM630m in March 2010. For 1H2010, Suncity
managed to generate new sales of RM424m, on track to meet its target of RM1bn (some new sales have not been
included in RM424m, pending signing of SPA). Given RM2.6bn worth of new launches next year, management has
targeted to achieve RM2bn sales for 2011. This is enough to underpin earnings for Suncity’s property development
segment over the next 3-4 years.

Chart 1: Suncity’s launches and sales

R M m il

3,000

2,500

2,000

1,500

1,000

500

0
2004 FP 2006 2007 2008 2009 2010 2011
Launches Sales

Source: Company

Chart 2: Breakdown of unbilled sales

R M m il

250

199
200

150
150 133

100
72 68 63

50
27
18
10
2 1
0
P alazzio SSQ SP K D'sara Overseas Vivaldi P enang Suria Ipo h Casa Others
Kiara 2

Source: Company

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 1 September 2010

♦ Continued expansion in property investments. After the injection of eight properties into Sunway REIT, Suncity is
left with a few properties in its property investment portfolio – the newly completed Sunway Giza, Sunway University
College, Monash University, Sunway Hotel Georgetown, Sunway Hotel Phnom Penh, The Banjaran Hotsprings Retreat,
Sunway Medical Centre and two theme parks. To re-build its recurring income sources (apart from the associate
contribution from Sunway REIT), Suncity will construct six new commercial properties going forward, including (i)
Sunway SOHO and offices suites – 28-storey mixed use commercial building with office and retail elements; (ii) The
Pinnacle – 25-storey office building; (iii) Sunway Velocity Shopping Mall; (iv) Sunway Monash University Residence –
student hostel; (v) Sunway Medical Cancer Centre; and (vi) Lost World Hotel in Tambun. Given a typical construction
period of three years, rental contribution is estimated to kick in only in 4-5 years time. As the properties get mature, we
believe these properties will be injected into the REIT to unlock value.

♦ New landbank in Penang. Recently, Suncity has acquired a piece of land measuring 80 acres in Penang (Bayan Lepas)
for RM38m (or RM11 psf). It is planned for development of semi-d and bungalow, with an estimated GDV of RM612m.
Average selling price will be about RM350-400 psf. Given the relatively low land cost, we believe margin for this
development will be quite lucrative.

♦ Plenty of room to gear up. Subsequent to the listing of REIT, Suncity will be in a net cash position. This provides
ample capacity for the company to gear up to fund the construction of the six new property assets, which would cost
about RM1.1bn over a period of there years, as well as new landbank acquisitions. Indeed, Suncity has identified two
plots of land, likely to be in Klang Valley and JB. Announcement would be made by end 2010 tentatively. We think
Suncity could gear up to its pre-REIT listing net gearing of 0.47x or up to 0.5x. This means the company can undertake
debt facility amounting to RM2bn, based on proforma cash balance of about RM900m. We, nevertheless, maintain our
balance sheet forecast for now, until the company makes announcements on its debt funding for landbank acquisitions.

Forecasts

Unchanged. Although Sunway Giza started its operations in Jan 2010, we keep our FY10-12 earnings forecasts
unchanged, as the rental contribution is minimal.

Risks

Risks to our view. The risks include: 1) competition from peers; 2) delays in launches and approvals; 3) rising raw
material prices; 4) imposition of cap on mortgage rate; and 5) country risks.

Valuations and Recommendations

Investment case. We adjust our RNAV estimates to include Sunway Giza and Sunway Hotel Hanoi (acquisition
completed in June 2010) as investment properties, as well as contribution from the new Penang land and Tianjin Eco
City to projects DCF. As such, our fair value is raised to RM5.45 from RM5.20, based on an unchanged 15% discount to
its RNAV of RM6.41/share. Maintain Outperform.

Table 2. Earnings Forecasts

FYE Dec (RMm) FY09a FY10F FY11F FY12F

Revenue 1,067.3 902.7 998.8 1,110.9

Operating profit 246.3 186.8 206.0 221.0

Interest expenses (69.9) (88.3) (59.5) (56.0)

PBT 760.9 233.6 261.4 295.4
Tax (183.7) (58.4) (66.7) (76.8)
Minority interest (218.6) (11.7) (13.1) (14.8)
Normalied net profit 150.0 163.5 181.7 203.8
EPS (sen) 31.9 34.8 38.7 43.4
DPS (sen) 13.0 36.0 8.5 10.0

Note: FY09 numbers are annualised

Source: Company data, RHBRI estimates

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 1 September 2010

Table 3: RNAV breakdown

Type Stake
EBITDA Mkt Value Book Value Valuation Surplus
Remaining Investment Properties (RM mil) (RM mil) (RM mil) (RM mil)
Monash University Campus 100% 5.2 158.0 158.0 0.0
Sunway University College 100% 8.9 150.0 150.0 0.0
Sunway Hotel, Penang 100% 2.5 63.0 63.0 0.0
Sunway Medical Centre 78% 10.4 184.0 184.0 0.0
Sunway Hotel Phnom Penh 53% 3.1 32.3 31.0 0.4
Sunway Giza 60% 2.6 44.1 28.8 6.0
Sunway Hotel Hanoi 100% n.a. 56.1 56.1 0.0
Subtotal: 30.1 587.3 586.0 6.4

Property Development Acres GDV NPV @ 13.2% Surplus for Suncity

Sunway South Quay 31% 58 4,063 403.4 125.1
Sunway Velocity 50% 23 3,052 318.2 159.1
Damansara 60% 24 1,118 111.0 66.6
Integrated Resorts 100% 18 462 45.8 45.8
Melawati 100% 33 461 45.8 45.8
Sunway Towers KL 100% 1 240 23.8 23.8
Taman Duta 60% 3 200 19.9 11.9
Others 100% 49 388 38.6 38.6
Penang Grp 100% 133 903 89.7 89.7
Semenyih 100% 398 1,105 83.9 83.9
Ipoh 65% 750 287 21.8 14.2
Opus, India 50% 35 1,174 94.3 47.2
MAK, India 65% 14 380 34.0 22.1
Australia 31% 148 800 71.5 22.2
Tianjin Eco City 60% 102 5,000 424.0 254.4
Jiangyin, China 39% 17 492 48.8 19.1
Subtotal: 1,069.1

Total 1,075.5
NTA FY09 2,174.6
Warrants conversion 746.6
RNAV 3,996.7
Enlarged shares base (mil) 623.3

Fully diluted RNAV per share (RM) 6.41

Discount 15%
Fair value per share 5.45

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 1 September 2010

Chart 3: Suncity Technical View Point

♦ The share price of Suncity was stuck in a sideways
trend at between RM2.92 and RM3.50 from Aug
2009 to early Apr 2010.

♦ The stock broke out from the RM3.50 level in early

Apr, and rose to RM4.28 by mid-Apr.

♦ However, as it failed to sustain at above RM3.98, it

fell swiftly into a rangebound trading at between
RM3.50 and RM3.98 thereafter.

♦ In recent sessions, the stock rebounded from a low

of RM3.56, near the support of RM3.50, to a high of
RM3.96, just few bids below the tough resistance at
RM3.98, but closed with a series of negative
candles on Monday.

♦ The chart pattern indicates a likelihood of a

technical retreat towards the 10-day and 40-day
SMAs near RM3.79 and RM3.69 respectively.

♦ Technically, if it fails to strengthen its trading

momentum in the next few sessions, it will floor
nearer to the range support level of RM3.50 again
in the near term, in our view.

♦ Investors should expect the rangebound trading to

continue until and unless it manages to breakout
on either direction of the RM3.50 - RM3.98 region.

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
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may from time to time have an interest in the securities mentioned by this report.

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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

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Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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actions of third parties in this respect.

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