MIDF Investment Bank (MIDF), in its Malaysia Market Update today (July 3), downgraded Sunway Berhad (SWB MK) to NEUTRAL following recent developments.
Sunway Berhad announced the sale of 64 acres of land in Sunway City Iskandar Puteri (SCIP) to Equalbase Pte Ltd for RM380 million, paving the way for a data centre project within the SCIP Free Commercial Zone. This transaction, valued at RM134 per square foot, aims to unlock value in Sunway Berhad's Johor landbank, which spans nearly 2,000 acres with a GDV exceeding RM30 billion.
Despite this positive development, MIDF maintained its earnings forecast for FY24F/25F/26F, excluding gains from land sales. The sale is anticipated to bolster SCIP's growth prospects, particularly as the Johor Bahru–Singapore Rapid Transit System nears completion by end-2026, enhancing regional connectivity.
Given these factors, MIDF upheld its target price for Sunway Berhad at RM3.98, underscoring confidence in its property and healthcare divisions' earnings potential. However, the downgrade from BUY to NEUTRAL reflects MIDF's assessment of limited near-term upside, despite favourable market conditions and ongoing projects.
Meanwhile Kenanga Investment Bank (Kenanga), in its latest analysis, echoed sentiments of cautious optimism towards Sunway Berhad (SWB), maintaining an UNDERPERFORM rating despite raising its target price to RM2.66 from RM2.47.
MIDF highlighted the sale of 64 acres in SCIP to Equalbase for RM380 million, which it estimates will yield a gain of RM324 million or 5.7 sen per share. This deal, at RM136 per square foot, aligns with market pricing norms for data centre land in Iskandar Puteri, reflecting fair valuation metrics.
Forecasts at Kenanga remain unchanged, excluding the one-off land sale impact, while acknowledging the minimal effect of RM380 million proceeds on Sunway Berhad's net debt and gearing ratios of RM7.6 billion and 0.5x, respectively.
The revised Sum-of-Parts (SoP) target price of RM2.66 incorporates these gains, albeit underperforming expectations due to recent share price gains and fair valuation metrics in the sector.
Investors are urged to weigh these factors against current market trends and company performance metrics before making investment decisions in Sunway Berhad.