December 3, 2010

SUNWAY - Sunway Holdings to build more factories in China?

Stock Name: SUNWAY
Company Name: SUNWAY HOLDINGS BHD
Research House: ECMLIBRA

Sunway Holdings Bhd
(Dec 2, RM2.28)
Maintain buy at RM2.25 with target price of RM2.60
: Sunway Holdings announced on Nov 29 it entered into a memorandum of understanding (MoU) with the Jiangsu Changshu Economic Development Zone Authority to acquire two pieces of land measuring 50,000 sq m and 100,000 sq m to build factories to manufacture undercarriage parts and hoses.

Details on the MoU and the proposed project are scant at this point, but conditions appear conducive for an investment in manufacturing facilities in the vicinity. The land Sunway proposes to acquire is located within the 71 sq km Changshu Economic Development Zone (CEDZ), established in 1992. CEDZ has grown into one of the Top 10 Economic Development Zones in Jiangsu province, with US$6 billion (RM19 billion) invested by 230 foreign firms. It is easily accessible via highways and railways, with tax incentives, warehousing and transport facilities. We feel the strongest advantage of the CEDZ is its close proximity to the deepwater international port of Changshu as the group caters for a large export market. Although it will undoubtedly contribute to the group's earnings growth, we do not see this happening in the near term until the land acquisition is sorted out and construction takes place.

Sunway is our top 'buy' for the construction sector. This is premised on: (i) strong earnings growth of 86.5% in FY10: (ii) undemanding forward PER valuation of 8.8 times; (iii) more landbank acquisitions in the pipeline; and (iv) strength in securing overseas construction contracts. Although our RNAV estimate stands at RM3.61, our target price is adjusted to reflect the offer price of RM2.60 in the proposed merger of the group with sister company Sunway City Bhd. ' ECM Libra Investment Research, Dec 2


This article appeared in The Edge Financial Daily, December 3, 2010.


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