Sunway’s Singapore deal seen as a positive move

PETALING JAYA: Analysts are positive about Sunway Bhd’s full acquisition of the Singapore and Malaysia property arm of Hongkong Land International Holdings (HLIH) – Hongkong Land (MCL) Holdings Ltd (MCL Land) – for RM2.4bil.

In a report, CGS International (CGSI) Research said this move further entrenches the group’s Singapore exposure.

The transaction is expected to be completed in the fourth quarter of 2025 (4Q25).

According to the research house, the acquisition price will be funded by debt, which will increase Sunway’s net gearing to 0.54 times from 0.39 times as of June 2025.

“We expect its balance sheet to improve further once Sunway Healthcare Group (SHG) completes its initial public offering (IPO) in 1Q26,” it said.

Additionally, there are three MCL Land projects in Singapore slated for completion by 2026, expected to generate S$300mil in cash flow.

Post-acquisition, MCL Land will be in a net cash position of S$30mil.

“We estimate this acquisition will lift Sunway’s financial year 2026 (FY26) net profit by 5.6%, assuming additional interest cost of RM52mil and using MCL Land’s FY24 net profit of RM123mil as a base.

“Sunway expects development margins of low teens for MCL Land, similar to its existing exposure in Singapore,” CGSI Research said.

It noted that Sunway already has a longstanding presence, although it currently holds only a minority 35% stake in both.

“Sunway believes it will be able to balance the future landbanking opportunities of all three entities as they have different niches, but we sense that the priority will likely be to grow MCL Land further,” the research house opined.

While the rationale of the acquisition is to gain exposure in Singapore, in Malaysia, the key low hanging fruit is the redevelopment of Wangsa Walk, which may potentially be injected into Sunway Real Estate Investment Trust, CGSI Research said.

“We are also positive on this exercise as this fills its need for a larger and more substantial property franchise post listing of SHG as its holding company discount may widen,” it noted.

CGSI Research has kept its “add” call on Sunway with a target price of RM5.90 as it finds the group favourable for its exposure to the healthcare sector, strong construction franchise and its exposure to the Johor-Singapore Special Economic Zone.

“Key downside risks include a slowing economy affecting most divisions and rising raw material costs, while re-rating catalysts include IPO of its healthcare business and stronger property sales.”