This article first appeared in Capital, The Edge Malaysia Weekly, on October 5 - October 11, 2015.

PROPERTY and construction giant Sunway Bhd (fundamental: 1.50; valuation: 2.40) on Sept 30 traded excluding entitlement to a 26 sen per share special dividend totalling RM448 million, which arose from spinning off Sunway Construction Group Bhd in late July. 

In addition to the 26 sen special dividend to be paid Oct 30, Sunway will also be paying another first interim dividend of five sen for FY2015 the same day. The stock will trade ex-entitlement for the five sen on Oct 15.

Closing at RM3.15 last Wednesday, Sunway shares have eased 12% from their recent high of RM3.527 on April 28, but are still up 6.7% year to date. That’s not too shabby compared with the 7.96% the bellwether FBM KLCI has dropped YTD and the 13.2% it has fallen from its 52-week high of 1,867.53 points on April 27 this year.

Will Sunway continue to outperform?

At the time of writing, Bloomberg data show nine analysts saying “buy”, versus six with a “hold” recommendation. Price targets ranged between DBS Vickers’ RM3.20 and KAF Seagroatt & Campbell’s RM4.75, averaging RM3.76 apiece.

Assuming RM3.50 as the ex-special dividend consensus target price, there is an 11.1% upside potential from Sunway’s RM3.15 close last Wednesday.

Investors confident of Sunway’s potential may also consider the company-issued warrant Sunway-WA, which expires on Aug 17 next year. Sunway-WA has a one-for-one conversion ratio and RM2.43 strike price. 

Some warrant holders have recently chosen to convert those warrants into Sunway shares ahead of the ex-date to be entitled to the special dividend, but Sunway-WA continues to provide a cheaper proxy for investors, although it was trading at a 5.71% premium to the underlying stock when it closed at 90 sen last Wednesday.

Sunway-WA would theoretically be worth 18.9% more at RM1.07 if its mother share reaches RM3.50 apiece, assuming zero premiums to the underlying stock.

It is not immediately known whether Sunway will adjust the exercise price of the warrants following the distribution of the special dividend.

MIDF Research analyst Alan Lim, who recently raised his target price by four sen to RM3.70 due to the special dividend, retains a “neutral” call due to a lack of catalysts post distribution. After the entitlement date, the target price will be reduced to RM3.44. 

Hong Leong Investment Bank Research analyst Jason Tan, who has a “buy” and RM3.75 target price for Sunway, is more sanguine. “We remain optimistic about the group and believe Sunway will continue to do active capital management to reward shareholders,” he says in a report dated Sept 3.

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