Kenanga Research starts coverage on Sunsuria with ‘outperform’

PETALING JAYA: Kenanga Research has initiated coverage on Sunsuria Bhd with an “outperform” recommendation and a target price of RM1.50.
“We like the company for its management team, healthy margins, light balance sheet, strong new sales and earnings growth mainly spearheaded by Sunsuria City, which enjoys catalysts such as the ERL station and Xiamen University,” it said in a research note yesterday.
Kenanga Research estimates Sunsuria to register strong sales growth of 94% and 25% in FY17 and FY18, while earnings normalisation results in core earnings leaped by 167% and 60% respectively.
Given the earnings leap, the research house expects Sunsuria to commence dividend payouts, with dividend yield projection of 2.6% to 4.1% for FY17 and FY18.
Sunsuria’s remaining landbank has a total gross development value of RM10.6 billion, which provides six to eight years’ visibility. Sunsuria City@Salak Tinggi is the main growth driver contributing 91% of the remaining total GDV.
As Sunsuria enjoys attractive land cost, Kenanga Research said it allows the company to have strong gross project margins of 40% to 45% due to its relatively low land-cost to GDV ratio of 8%.
ERL station Transit Oriented Development (TOD) and Xiamen University Malaysia (XUM) are population catalysts for Sunsuria City, as the project has a direct link to the Salak Tinggi ERL station with plans for a lifestyle hub TOD.
Kenanga Research said Sunsuria is also ramping up new launches to RM1.57 billion to RM1.74 billion in FY17 and FY18 as major approvals have been secured, mainly from Sunsuria City.
The bulk of these launches are affordable or mid-market residential property priced below RM500,000 (27%) and RM500,000 to RM700,000 (30%) while the commercial products (33%) are mainly shop offices/integrated commercial/retail space.
Sunsuria City’s Bell Avenue retail shops/Jasper shops have garnered decent take-ups of 73% collectively at the end of FY16.