AmWatch - Sunway : Listing construction division HOLD, 22 Sep 2014

STOCK FOCUS OF THE DAY

Sunway  : Listing construction division    HOLD

 

We maintain HOLD on Sunway with a raised fair value of RM3.42/share based on SOP to account for a higher valuation for its construction division from 10x previously to 12x. Sunway has proposed to list its construction division and with it, a share dividend-in-specie and special cash dividend, which combined translates to a yield of 7%-10% per share.

We expect construction to contribute 20%-25% of the group’s FY14F-FY16F earnings. With an effective disposal of a ~44% stake, the group’s earnings could be reduced by 8%-11%. We remain neutral, but apart from realising returns from the cash dividend, the proposals offer shareholders the option of staying invested in SCG for potential capital gain or exit upon the listing.

Sunway will retain control with a 55.62% stake; 13.3% will be distributed 1-for-10 as dividend-in-specie to Sunway shareholders, 25.5% offered to local and foreign institutional investors, and 5.5% to retail investors, including directors and employees. The proceeds from the institutional and retail offerings will be distributed to Sunway shareholders via a special cash dividend, minus working capital and expenses. It expects to submit the proposals to the authorities by 4Q14, call for the EGM by 1Q15, and complete the proposals by 2Q15.

The new holding company Sunway Construction Group Bhd (SCG) will have a paid-up capital of RM258.6mil comprising 1,292.9mil shares of 20 sen each. At RM1.00/share, SCG would be priced at 13.5x and 10.2x PE of our FY14F and FY15F construction earnings. We expect the IPO valuation to be within that range. Assuming a PE of 11x, SCG would be priced at RM1.07/share based on our FY15F EPS of 9.8 sen, with a market cap of RM1.38bil. At RM1.07/share, the share dividend is worth 10.7 sen/ share and the offer for sale could raise RM396mil- RM429mil.

Others :

Berjaya Sports Toto : Hit by higher prize payout                                                 HOLD

Astro Malaysia : Decent result driven by consistent ARPU growth             HOLD

QUICK TAKES

Kossan Rubber : Signs MoU to grow its TRP business                       BUY

Plantation Sector : Newsflow for week 15 – 19 September           NEUTRAL

Construction Sector  : 4 shortlisted for Kepong incinerator            OVERWEIGHT

NEWS HIGHLIGHTS

Puncak Niaga Holdings : Wants to offer its expertise to other states and overseas

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Media Sector : Programme to improve advertising sector

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