DATUK Ter Leong Yap’s plan to get Sunsuria Bhd into the ranks of the billion-ringgit property developers is back on track.   

Last week, Sunsuria (fundamental: 2.5; valuation: 1.2) announced the signing of documents with Ter, who is the company’s executive chairman, for an asset injection exercise. It involves the purchase of equity stakes in three real estate companies that own land in Salak Tinggi, Setia Alam and Medini, southern Johor, for RM350 million.

Ter would utilise RM100 million of the sales proceeds to subscribe to the company’s share placement of 102 million shares at 98 sen per share. Sunsuria will carry out a rights issue and share placement to raise funds for the acquisition. Ter’s  shareholding will be bumped up to 58% after the cash call and share placement, from 50.12% currently.

In an interview, Ter says he anticipates that Sunsuria’s earnings will get an instant boost from the three development projects, namely Sunsuria Serenia, Sunsuria Medini and Sunsuria Hills.

According to him, the three projects have a sales target of RM960 million to RM1 billion for FY2016.

Sunsuria would hold a 50% stake in Sunsuria Serenia in Salak Tinggi, Selangor; 21% in Sunsuria Medini in Iskandar Malaysia; and 100% in Sunsuria Hills in Shah Alam.

Sunsuria Serenia has an estimated gross development value (GDV) of RM6.4 billion, and Sunsuria Medini and Sunsuria Hills, RM4.4 billion and RM76 million, respectively.

“If you look at the projects to be injected into Sunsuria, the total GDV is RM11 billion, while our effective stake is RM4.5 billion, but the pricing of the landbank is only RM350 million. In other words, our acquisition cost makes up less than 10% of the land value [potentia GDV],” Ter explains.

He is unperturbed by the challenges facing the property sector, such as the  central bank’s cooling measures or implementation of the Goods and Services Tax (GST). Now, he says, is the right time for Sunsuria to show its strength.

“During the good times, everyone can do their jobs, but it is only in the bad times that you can see who has greater strength,” he says.

This year, Sunsuria plans to launch properties with a GDV of RM1.2 billion to RM1.3 billion. The company, he notes, will receive RM500 million in sales from its effective interest in Suria Residence, Suria Hills and Xiamen Township Development.

For the nine months ended Dec 31, 2014 (9MFY2015), Sunsuria generated a net profit of RM3 million, on revenue of RM56 million. On an annualised basis, the group should see a net profit of RM4 million and revenue of RM75 million for FY2015.

UOB Kay Hian, in a March 11 research report, notes that Sunsuria could potentially achieve a net profit of over RM100 million in FY2017 ending March 31, should the assets injection transpire.

The research house gives Sunsuria a fully diluted target price of RM1.45 (after adjusting for the rights issue), based on a 30% discount to its fully diluted revalued net asset valuation (RNAV), which includes the land parcels that are being acquired.

The asset injection was first mooted last year but was subsequently delayed. Recall that in 2014, Ter took control of Sunsuria, previously Malaysian Aica Bhd, and turned the door-maker into a property player.

Nevertheless, the current asset injection is similar to what had been announced last year, except that another project, 7th Avenue II in Shah Alam, has been excluded.

The project, on a 14-acre site, features high-rise residential towers and has an estimated GDV of RM1.3 billion. It is currently 81%-owned by Ter’s privately-held real estate company.

“We are still in discussions with our joint-venture partner (which owns the remaining 19% stake) but the challenging part is the pricing issue. If everything is okay, we should be able to announce the asset injection this year. I don’t mind if the public-listed company (Sunsuria) benefits, since I’m running the company anyway,” he says.

UOB Kay Hian says there could be an upside of 34 sen to its current RNAV per share, should Sunsuria decide to acquire 7th Avenue II.

Ter, however, stresses that not every asset is suitable for Sunsuria, and it is important to note that the company is not a “dumping ground for asset injection”.

“We want to grow this company in a nice manner. If you notice, the assets that we plan to inject have immediate development potential,” he says.

At its closing price of RM1.62 last Thursday, Sunsuria had a market capitalisation of RM256.5 million.

Sunsuria had announced a 3-for-1 rights issue, which was approved in May last year, but the issue price has yet to be fixed. Ter says that will be decided in June, a month after shareholders vote on the asset injection at an extraordinary general meeting in May.

The cash call is expected to raise between RM308 million and RM380 million, based on an indicative issue price of 65 sen to 80 sen apiece, as it will be fixed at least 25% lower than the ex-all price, says Ter.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on March 16 - 22, 2015.

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