Diversified conglomerate Sunway Bhd has made no secret that its property division is expanding its overseas operations in Singapore and China.
But it was not until last month that things got moving when its property division disposed of its 30% equity interest in Hoi Hup Sunway Novena Pte Ltd (HHSN) for a cash consideration of S$39.9 mil (RM118.6 mil).
This started the ball rolling for its Singapore developments including its land banking activities in the city-state.
The disposal marks the completion of the HHSN project and will enable Sunway to exit and monetise its investment by re-investing into Singaporean projects, says Sarena Cheah, managing director of Sunway’s property division in Malaysia and Singapore.
“Sunway intends to utilise the proceeds for its new projects, as well as new land bank acquisitions to strengthen its property development presence in Singapore,” she says.
What is certain is that part of the sale proceeds will be used to finance a proposed redevelopment on a prime 999-year leasehold plot in Clementi, Singapore, known as Brookvale Park.
Sunway has not yet announced what will be built on the S$530 mil en-bloc acquisition.
The project is to be developed by another joint-venture entity which includes Sunway, Hoi Hup Realty and SC Wong Pte Ltd. Sunway has a 30% stake in the joint-venture company.
Reducing net gearing
While both the disposal and acquisition are seen positively, the S$39.9 mil injection is also a means for Sunway to reduce its net gearing, placing the corporation on a more positive footing in Singapore.
“The proceeds from the disposal are expected to reduce Sunway’s net gearing to 0.4x from 0.42x as of 1QFY18,” says MIDF Research analyst Jessica Low.
The monetisation also gives Sunway a working capital apart for funding land acquisition activities, says.
However, the earnings impact from the disposal is limited as there is a disposal loss of about S$100,000, which is considered a small amount in the grander scheme of things.
After all, Sunway’s new property sales outlook for 2018 remains stable with its management targeting to chalk up new sales of RM1.3 bil, in contrast to last year’s RM1.2 bil, on the back of targeted launch of properties with gross development value (GDV) of RM2 bil, says Low.
In addition, HHSN was set up in December 2012 to undertake the Royal Square at Novena development which comprises a hotel, medical units and retail units, says Cheah.
“Royal Square at Novena was successfully completed on July 12 last year with HHSN recording accumulated profits of S$132.5 mil from the project,” she says, noting that the joint-venture company had done its job in realising earnings for the group.
But the disposal does not mean that Sunway will abandon the development.
The opposite is true in that the group has retained an entire floor of medical suites in Royal Square at Novena with total floor area of approximately 8,500 sq ft with the aim of establishing Sunway Medical’s maiden presence in Singapore, says Cheah.
Expected to commence operations by year-end, Sunway Medical Singapore is envisaged to be a collection of clinics housing doctors in various specialisations and a wellness centre, she says.
Sunway, however, is tight-lipped about its China projects. To date, it has completed its Sunway Yi Fang Cheng residential component in the Jiangsu Province, north of the nation’s biggest city Shanghai and Sunway Gardens Phase 1 in Tianjin Eco-City, about 45km east of Tianjin City.
Sunway Yi Fang Cheng is a mixed development comprising six residential blocks and commercial shoplots worth half a billion ringgit while Sunway Gardens is a high-density development with 21 residential towers and an estimated GDV of RM5 bil.
The former is built on a 6.9ha project, which is the group’s maiden project in China, undertaken by a joint-venture company, Jiangyin Guang Hao Real Estate Development Co Ltd.
The JV is 35% owned by Shanghai Guang Hao Co Ltd and 65% by Sunway Real Estate (China) Ltd.
Sunway Gardens, on the other hand, is primarily to serve Tianjin Eco-City’s growing population and expected need of 100,000 homes. The city is a 30 sq km modern township being jointly developed by the governments of Singapore and China.
Sunway will be concentrating on the next phase of both projects, namely the Sunway Yi Fang Cheng commercial component and phase two of Sunway Gardens.
While Sunway has not officially revealed how much land bank it has in Singapore and China, it is estimated to be about 10% of its total land bank, based on 2013 reports.
“China’s continuing growth and strong performance in 2017 is expected to be sustained in 2018, which further enhances the growth prospects for countries in Asia,” says the group.
Sunway has more than just property development activities in China. Its trading and manufacturing division has also made its presence there.
“Industrial production growth has also been picking up and infrastructure investment is expected to remain strong.
“China’s Belt and Road Initiative presents strong opportunities for the group’s trading and manufacturing division to supply resources for the construction of the new rail (projects), roads, waterways, pipelines and highways,” it says.
As a conglomerate, Sunway has many other core activities outside Malaysia.
Its business interests include construction, trading and manufacturing, quarrying and building materials, education, retail, healthcare and hospitality.
Other overseas linkages
“We are an integrated property developer. We have a ‘build, own and manage’ business model [which includes overseas ventures],” Cheah had previously told FocusM.
Sunway’s hospitality division operates 11 hotels and resorts in key cities in Malaysia, Cambodia and Vietnam, representing a collection of 3,386 guestrooms, suites and villas.
It owns and manages Sunway Hotel Phnom Penh in Cambodia and Sunway Hotel Hanoi in Vietnam, serving the Indochina region.
The group also has numerous other businesses in Asia linked to its core activities.
Property observers note that Sunway’s move towards Singapore and China is due to the weaker property contribution to the group’s coffers.
The property segment’s 1Q18 pre-tax profit dipped 5% yoy and 77% qoq to RM23.8 mil as a result of lower sales and progress billings from local development projects, according to Alliance DBS Research analyst Quah He Wei.
“Therefore, the property division’s pre-tax profit only contributed 15% of the group’s overall pre-tax profit, which is also the lowest in recent years, reflecting the subdued property market conditions,” says Quah.
But sales have been low. “Sunway’s 1Q18 property sales only came in at RM166 mil as the group has yet to ramp up its launches. It is targeting RM1.3 bil sales in FY18, premised on a launch pipeline of RM2 bil this year,” Quah points out.
However, it is crucial to note that Sunway only achieved 12% of its full-year sales of RM1.16 bil in 1Q17, which underlines the typically much stronger sales momentum in the second half of the year when Sunway undertook a series of promotions and financial aid to spur sales, says a property observer.
Singapore, on the other end, has seen good response to Sunway’s properties, he says.
For instance, Hoi Hup Sunway Sengkang Pte Ltd’s S$658 mil Rivercove Residences, comprising 628 units of executive condominium units within ten 16-storey blocks at Anchorvale Lane, Singapore has been 98% sold.
Launched on April 14, the riverside development, which is next to the tranquil and scenic Punggol Reservoir has been snapped up by eager buyers, recording 80% sales on its first day of launch.
The transit-oriented development is a seven-minute walk to the Tong Kang light rail transit station and close to the Sengkang mass rapid transit bus interchange.
The group has a good reputation which has helped its continued growth, says the property observer.
To date, the property division has built integrated townships and developments of more than 2,023ha comprising over 28,000 units across Malaysia, including those that it owns and operates.
It also has an enviable portfolio with successful and internationally acclaimed properties abroad, including in China, India, Cambodia, Vietnam and Singapore.
The Sunway brand is built on innovation, quality and sustainability, values which are reflected in the division’s portfolio of residential, commercial and retail properties, says the group.
According to Cheah, the company’s next overseas destination is likely to be Melbourne, Australia. “We are looking for strategic locations there,” she says