MCL Land has five ongoing residential projects in Singapore, targeting the mid-market residential segment, with a gross development value of $2.96 billion with an "encouraging" average take-up rate of 90%.
Low notes that historically, Sunway is not a stranger to Singapore developments, but it has been in the form of joint ventures.
"Hence, the acquisition allows Sunway to have faster expansion in Singapore as Sunway could undertake projects in Singapore by leveraging on the expertise of MCL Land," says Low, noting that MCL Land has developed 48 residential projects since 1992.
In Malaysia, MCL Land is developing two condos and owns the Wangsa Walk Mall with 2 million sq ft gross floor area, which has the potential to be redeveloped into an integrated development.
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"We see synergies between Sunway Berhad and MCL Land in terms of property development and property investment portfolio, given the exposure of Sunway Berhad in Klang Valley and Seremban," says Low.
The sale price, at NAV, is deemed "fair" by her, given the immediate earnings contribution from ongoing projects.
She notes that Sunway expects net earnings contribution of around RM67 million, which could potentially lift her FY2026 earnings forecast by 7%. Pending completion of the acquisition, she is keeping her earnings forecast for now.
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Net gearing is seen to increase to 0.55x from 0.41x in FY24 but should "remain manageable" due to proceeds from upcoming Sunway Healthcare Holdings IPO and income contribution from MCL Land.
Having updated her valuation of Sunway REIT in her sum-of-the-parts valuation, Low has reached a slightly higher target price of RM5.13 from RM5.06.
"The acquisition of MCL Land bodes well for the expansion of Sunway Berhad in Singapore, with a stable outlook for mid-market residential property," says Low.
However, she thinks that most of the positives have already been priced in and thus upside is limited.
"Hence, we maintain our NEUTRAL call on Sunway Berhad," she says.
