Sunway announced on Tuesday it is selling two parcels of land measuring 64 acres in Sunway City Iskandar Puteri (SCIP) to Singapore-based Equalbase Pte Ltd, which intends to construct data centres on it.
Equalbase’s latest investment is a continuation of its joint venture with Sunway – Equalbase Sunway 103° – which was established in November last year. The carbon-neutral logistics hub in SCIP is situated on a 135-acre plot within a free commercial zone with a gross development value (GDV) of RM8 billion.
Kenanga Research, which has a “sell” call on the stock, estimates that the land sale will result in a hefty gain of RM324 million for Sunway.
The parcels are part of Sunway’s 1,079 acres in Pendas, Johor, which it acquired in 2012 at only RM20 psf.
“At RM136 per square feet (psf), we believe the deal was priced fairly with asking prices for Iskandar Puteri data centre land ranging between RM135 psf and RM140 psf.
“Based on our back-of-the-envelope calculations, at a book value of the land of circa RM55.4 million (RM866,000/acre or RM20 psf) in CY2012, we estimate the gain to be at RM324 million.
“Nonetheless, the RM380 million proceeds will have little impact on its net debt and gearing of RM7.6 billion and 0.5x, respectively,” said Kenanga in a note yesterday.
‘Rich valuations’
The research house maintained its “underperform” rating given Sunway’s “rich valuations” following the run-up in its share price.
Sunway’s shares have been on a tear, surging 148.43% over the past one year. Year-to-date, the stock is up 83.72%. It closed 12 sen or 3.13% higher at RM3.95 yesterday, valuing the group at RM22.5 billion.
Kenanga has raised its target price (TP) by 8% to RM2.66 from RM2.47 previously. At RM2.66, it is 32.66% lower than its current price.
MIDF Research has downgraded Sunway to “neutral” from “buy” due to limited upside while keeping its TP unchanged at RM3.98.
“We think that the positives have been largely priced in following strong gains in Sunway’s share price with year-to-date gains of 86%,” it said in a note yesterday.
Nevertheless, MIDF opined that the land sale is expected to be positive as it unlocks the value of Sunway’s landbank in Johor.
“Note that SCIP is Sunway’s key township in Johor with close to 2,000 acres of land and a GDV of more than RM30 billion,” it said, adding that the investment by Equalbase is expected to propel SCIP’s growth.
Data centre boost for SCIP
Meanwhile, TA Research has a positive take on the land disposal as it anticipates it will solidify the future growth of the Equalbase Sunway 103° development.
“The establishment of data centres on the land is expected to enhance demand for industrial spaces within SCIP.
“This is also likely to elevate the land value of SCIP and stimulate demand for residential products within the area, driven by the spillover effects of increased job opportunities stemming from Equalbase Sunway 103°,” it said in a note.
It also believes SCIP will benefit from the optimism surrounding the upcoming Rapid Transit System Link and the proposed Johor-Singapore Special Economic Zone (JS-SEZ).
“We expect Sunway to ramp up its residential launches in Johor once there is more clarity on the JS-SEZ,” it added.
The research house has a “buy” call on the stock with a TP of RM4.33.