PP 7767/09/2010(025354)

23 August 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su lt s N o te
23 August 2010
MARKET DATELINE

Sunway City Share Price

Fair Value
:
:
RM3.73
RM5.20
31 sen gross dividend to reward shareholders 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
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009** 1,067.3 148.8 31.7 13.9 11.8 - 3.5 0.8 6.9 53.4 2.3
2010f 902.7 163.5 34.8 9.9 10.7 37.4 3.0 0.8 7.2 Net cash 9.7
2011f 998.8 181.7 38.7 11.1 9.6 41.3 7.8 0.7 7.5 Net cash 2.3
2012f 1,110.9 203.8 43.4 12.2 8.6 47.5 7.6 0.7 7.9 Net cash 2.7
Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC #normalised **annualised * Consensus Based On
IBES

RHBRI Vs. Consensus

♦ In line. Excluding the one-off fair value gain amounting to RM41.8m (RM32.4m Above
net) arising from the completion of disposal of three parcels of leasehold land In Line
to Sunway Pyramid S/B, core net profit of RM39.3m came in within our Below
expectations but below consensus estimates by 10.5%. Compared to 1Q10 core
Issued Capital (m shares) 469.9
net profit of RM41.9m, contraction of 6.3% in 2Q10 core earnings was mainly
Market Cap (RMm) 1,752.9
dragged down by lower revenue from the property development division, due
Daily Trading Vol (m shs) 0.1
to the completion and delivery of Sunway Giza in 1Q10. To our surprise,
52wk Price Range (RM) 2.88-4.28
Suncity declared an interim dividend of 31 sen, to commemorate the successful Major Shareholders: (%)
listing of Sunway REIT. Including our final dividend forecast of 5 sen, this year’s Tan Sri Dato’ Seri Dr 40.3
dividend yield may potentially surge to 9.7%. Cheah Fook Ling
Government of Singapore 21.4
♦ Targeted RM1.76bn worth of new launches. Key launches this year include:
Investment Corporation

i) Sunway Velocity; ii) Sunway South Quay condo; and iii) Commercial area in
Sunway Damansara. So far in 1H10, Suncity has launched RM966m worth of FYE Dec FY10 FY11 FY12
projects, generating new sales of RM424m, representing a take up of roughly EPS chg (%) - (0.4) -
44%, exceeding internal sales target of RM411m. Going into 2H10, Suncity will Var to Cons (%) (7.0) (6.4) (8.7)

launch the remaining RM798m worth of new projects. The upcoming Sunway
PE Band Chart
Velocity has managed to attract 2,000 registrants. The project has a total GDV
of RM1.5bn, located at Jalan Peel, Cheras. The first launch will consist of 112
PER = 11x
units of office suites with 2 levels of retail lots on the ground floor, as well as PER = 9x
PER = 7x
264 units of service apartments. Pricing is about RM450-500psf. As for the PER = 5x
Tianjin, China project, Suncity will sign the equity JV agreement next month.
The consortium partners include Keppel Land from Singapore, Shima from
China, Mitsui Fudosan from Japan, Far Glory from Taiwan and etc. The Tianjin
Eco-City project is worth a preliminary GDV of RM2.5bn.

♦ Debt free post-REIT listing. Following the successful listing of REIT, Suncity Relative Performance To KLCI
will become a net cash (about RM120m based on proforma) company, after
utilisting part of the proceeds to pare down debt. This would give the company Sunway City

ample flexibility to gear up for big projects or landbank acquisitions.

FBM KLCI
♦ Forecasts. We adjust our balance sheet based on the proforma provided.
Impact on net earnings is minimal, <1% drop from our previous forecasts.

♦ Risks. The risks include: 1) competition from peers; 2) delays in launches and
approvals; 3) rising raw material prices; and 4) country risk.

♦ Investment case. Following the adjustments in our forecasts, our RNAV-based Joshua Ng
fair value is revised slightly to RM5.20, from RM5.33, based on an unchanged (603) 92802237
joshuang@rhb.com.my
15% discount. We maintain our Outperform rating on the stock.

Please read important disclosures at the end of this report. Page 1 of 4

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Table 2. Suncity Quarterly Results (Suncity changed its FYE from Jun to Dec in FY09)
FYE Dec (RMm) 4QFY09 1Q10 2Q10 QoQ YoY 1H09 1H10 YoY Comments
(Apr- (%) (%) (%)
Jun09)
Turnover 230.3 283.3 262.3 (7.4) 13.9 493.0 545.6 10.7 Qoq decline was mainly dragged down by lower
contribution from the property development
division.
Prop dev 73.8 97.5 61.7 (36.7) (16.4) 176.9 159.2 (10.0) Qoq decline was attributed to the completion and
delivery of Sunway Giza in the previous quarter.
Prop invt 67.1 79.0 73.6 (6.8) 9.7 135.1 152.6 13.0
Leisure 24.2 29.4 41.4 41.0 71.2 48.3 70.8 46.6

Hospitality 35.3 46.1 50.0 8.4 41.8 76.0 96.1 26.5

Healthcare 29.9 31.3 35.5 13.4 18.8 56.7 66.8 17.8

EBIT 67.7 91.8 121.8 32.7 80.0 145.8 213.6 46.5 2Q10 EBIT included a one-off gain on land disposal
amounted to RM41.8m.
Prop dev 20.2 23.2 12.8 (44.9) (36.7) 49.2 36.0 (27.0)
Prop invt 45.4 53.7 85.6 59.4 88.7 85.7 139.2 62.4 2Q10 improvement was mainly due to stronger
contribution from Sunway Pyramid Shopping Mall,
driven by higher visitorship and good rental yield.
Leisure 1.4 4.1 8.5 >+100 >+100 3.1 12.6 >+100
Hospitality 2.0 11.2 13.3 19.1 >+100 8.7 24.6 >+100 Better performance in 2Q10 was due to higher
average room rate.
Healthcare (1.2) (0.4) 1.6 >-100 >-100 (1.0) 1.3 >-100
Others 0.0 0.0 0.0 Na Na 0.0 0.0 Na

Finance cost (15.4) (17.1) (16.9) (1.3) 9.5 (32.4) (34.0) 4.8
Asso & jv 8.8 12.6 8.2 (35.0) (7.7) 16.9 20.7 22.5
Other Income 0.0 0.0 0.0 Na Na 0.0 0.0 Na
Pretax profit 61.1 87.3 113.1 29.6 85.1 130.3 200.4 53.8
Tax (16.5) 301.4 (21.4) >-100 29.3 (29.7) 280.0 >-100 Positive tax expense in 1Q10 was due to the
reclassification of certain investment properties to
non-current assets held for sale pursuant to the
proposed sale to REIT. As a result of the
reclassification, Suncity has reversed deferred tax
liability amounting to RM318.5m (RM181.4m net)
PAT 44.6 388.7 91.7 (76.4) >+100 100.6 480.4 >+100
MI (18.4) (165.4) (20.1) (87.9) 9.1 (46.2) (185.4) >+100
Net profit 26.2 223.3 71.7 (67.9) >+100 54.4 295.0 >+100 2Q10 net profit included a one-off fair value gain of
RM41.8m (RM32.4m net), arising from the
completion of land sale whereby Suncity sold three
parcels of leasehold land to Sunway Pyramid Sdn
Bhd.

EPS (sen) 5.6 47.5 15.3 (67.9) >+100 11.6 62.8 >+100
NTA (RM) 3.8 5.0 5.2 3.0 34.8 3.8 5.2 34.8
DPS (sen) 8.0 0 31.0 Na Na 8.0 31.0 >+100 Surprise on 2Q10 dividend.

EBIT Margin 29.4 32.4 46.4 29.6 39.2 Excluding 2Q10 EI, EBIT margin was 31.5%.
(%)
Prop dev 27.3 23.8 20.7 27.8 22.6
Prop invt 67.6 68.0 116.2 63.5 91.2
Leisure 6.0 14.1 20.5 6.5 17.8
Hospitality 5.5 24.3 26.7 11.5 25.5
Healthcare (4.1) (1.3) 4.6 (1.8) 1.9
PBT margin (%) 26.5 30.8 43.1 26.4 36.7
Normalised tax 27.1 (345.4) 18.9 22.8 (139.8) Lower effective tax rate in 2Q10 was due to
rate (%) utilisation of unabsorbed losses and unutilised
capital allowances of certain subsidiaries.

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Table 3. Earnings Forecasts

FYE Dec (RMm) FY09a FY10F FY11F FY12F

Revenue 1,601.0 902.7 998.8 1,110.9

Operating profit 369.5 186.8 206.0 221.0

Interest expenses (104.8) (88.3) (59.5) (56.0)

PBT 1,141.4 233.6 261.4 295.4
Tax (275.5) (58.4) (66.7) (76.8)
Minority interest (328.0) (11.7) (13.1) (14.8)
Net profit 223.2 163.5 181.7 203.8
EPS (sen) 114.5 73.4 38.7 43.4
DPS (sen) 13.0 36.0 8.5 10.0

Note: FY09 has 18 month period, due to change in FYE to Dec.

Source: Company data, RHBRI estimates

Table 4: RNAV breakdown

Type Stake
Remaining Investment Properties EBITDA Mkt Value Book Value Valuation Surplus
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 1.3
Subtotal: 30.1 587.3 586.0 1.3
(Implied yield @ BV) 5.1%

Property Development Acres GDV NPV @ 13.2% Surplus for Suncity

Sunway South Quay 31% 61 4,261 528.9 164.0
Sunway Velocity 50% 23 1,500 186.2 93.1
Damansara 60% 22 1,326 164.6 98.7
Integrated Resorts 100% 18 462 55.0 55.0
Melawati 100% 33 461 54.9 54.9
Sunway Towers KL 100% 1 240 29.8 29.8
Taman Duta 100% 3 200 24.8 24.8
Others 100% 49 388 46.3 46.3
Penang Grp 100% 34 293 36.3 36.3
Semenyih 70% 398 1,105 115.2 80.7
Ipoh 65% 750 385 40.2 26.1
Opus, India 50% 35 1,174 145.7 72.9
MAK, India 60% 14 380 47.2 28.3
Australia 15% 123 800 99.3 14.9
Cambodia 70% 750 500 62.1 43.4
Jiangyin, China 39% 17 492 61.1 23.8
Subtotal: 892.9

Total 894.2
NTA FY09 2,174.6
Warrants conversion 746.6
RNAV 3,815.4
Enlarged shares base (mil) 623.3

Fully diluted RNAV per share (RM) 6.12

Discount 15%
Fair value per share 5.20

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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
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

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.

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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securities, subject to the duties of confidentiality, will be made available upon request.

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