Sunway announces special cash dividend of 26 sen

Sunway Bhd (Sept 3, RM3.45)

Maintain neutral with a higher target price (TP) of RM3.70: Sunway Bhd (Sunway) has announced a special cash dividend of 26 sen. Note that the special dividend arose from the proceeds raised via the offer for sale of Sunway Construction Group Bhd (Suncon) shares in its initial public offering (IPO) [after setting aside for listing expenses and working capital]. Entitlement date and payment date will be on Oct 2 and 16 respectively.

The 26 sen special dividend announced is higher than the indicative amount of between 22 sen and 25 sen mentioned in a circular to shareholders for the Suncon IPO.

We expect the special dividend news to boost price in the near term up to the entitlement date of Oct 2 as it represents a substantial net yield of 7.7% as of Wednesday’s closing share price of RM3.38.

Sunway’s first half financial year 2015 (1HFY15) sales of RM478 million make up only 28% of management’s sales target of RM1.7 billion for FY15.

We are less optimistic as we forecast FY15 sales of RM1.31 billion (23% below Sunway’s internal target).

Although the company has lined up launches of up to RM2.09 billion in 2HFY15 (from September onwards), we believe that the effective take-up rate may be low due to a potential delay in bank approvals for loans and the challenging outlook for the property sector currently.

We have increased our TP by four sen as we have now taken into account the special dividend of 26 sen (previously 22 sen).

Our valuation method of a 15% discount to the revalued net asset valuation is maintained. After the entitlement date, our TP will be reduced to RM3.44.

We maintain our “neutral” call as we expect minimal catalysts going forward after the entitlement date of the special dividend. As explained previously, we are less optimistic about Sunway sales in 2HFY15. We leave our earnings forecasts for both FY15 and FY16 unchanged as the news does not change Sunway’s fundamentals. — MIDF Research, Sept 3

This article first appeared in the digitaledge DAILY on Sept 4, 2015. Subscribe here.