Merger : New Listing 27 July 2011

Maybank IB Research PP16832/01/2012 (029059)

Sunny disposition: Larger and leaner

Making waves. Sunway Berhad, enroute to a Main Market listing, will

rank 4th in market value among the listed property developers. The

group, an amalgamation of Sunway City and Sunway Holdings, will be

leaner in group structure. Apart from a larger balance sheet which will

open up more possibilities especially in overseas expansion, the

merger will also allow synergies to be reaped to the tune of 1-2% of

combined revenue over the next 2 years. The listing should re-rate the

Sunway Group for its larger market value and shares trading liquidity.

13% 2010-13 net profit CAGR. Based on RM1.7b unbilled property

sales, and RM2b outstanding construction order book, we forecast

RM332m net profit in 2011. Our 2012-13 earnings forecasts imputed

RM2.1b-RM2.9b property sales and RM1.2b-RM1.5b construction job

wins p.a. over 2011-12. Property development will contribute 50% to

group operating profit in 2011, property investment 19%, construction

23% and other businesses 8%. Besides cross-utilisation of property

and construction expertise, combined administrative and treasury

functions will result in cost savings, yet to be imputed into our forecasts.

Growth strategy. Longer term plans are to continue on its overseas

drive, while cementing a stronger foothold in the domestic market. In

property development, 35% of its remaining RM14.5b GDV are located

overseas, with China (22%) and Singapore (6%) being the core

markets. 26% of its outstanding construction order book is in Abu Dhabi

and Singapore. The construction business is competitive enough in

India and Middle East. The trading business is already internationalised

with 70% of its earnings derived from the overseas market.

37% upside via Sunway City, Sunway Holdings. We value Sunway

Berhad at RM5.9b or RM3.85 per share based on sum-of-parts (SOP;

fully diluted) before including merger synergies. Based on part share

settlement for Sunway City and Sunway Holdings shareholders (20%

cash, 80% shares), both stocks and their warrants offer 37% upside.

We value the property development business on RNAV (land surplus

and DCF), property investment on 7-10% cap rate, and construction

and the other businesses on PERs. Our RM3.85 SOP valuation imply

still fair 15x 2011 PER and 12.3x 2012 PER for the enlarged group.

Sunway Berhad – Summary Earnings Table FYE Dec (RM m) 18M09P 2010P 2011F 2012F 2013F Revenue 4,150.4 3,134.5 3,469.6 3,714.3 4,341.2

EBITDA - - 458.9 504.2 591.8

Recurring Net Profit 303.5 310.2 331.6 401.8 442.6

Recurring Basic EPS (Sen) 23.6 24.1 25.7 31.2 34.4

EPS growth (%) - - 6.9 21.2 10.2

DPS (Sen) - - 6.9 8.3 9.2

- PER # 11.9 11.6 10.9 9.0 8.2

EV/EBITDA (x) # - - 3.9 3.7 3.4

Div Yield (%) # - - 2.5 3.0 3.3

P/BV(x) # - - 1.5 0.9 0.8

Net Gearing (%) - 57.0 50.7 26.6 19.2

ROE (%) - - 12.3 9.3 9.5

ROA (%) - - 4.4 5.0 5.0

Note: 18M09 and 2010P financials are proforma; # based on RM2.80 issue price

Source: Maybank IB

Sunway Berhad

Not Listed (target: by-end August 2011)

Share price: RM2.80 (issue price) Target price: RM3.85 (new)

Wong Chew Hann, CA wchewh@maybank-ib.com (603) 2297 8686 Wong Wei Sum, CFA weisum@maybank-ib.com (603) 2297 8679 Description: One of the leading property and construction groups in Malaysia (new merged entity of Sunway City and Sunway Holdings). Reputable projects including Bandar Sunway township. Sunway Berhad is also the asset owner of SunREIT (37% stake; investment properties include Sunway Pyramid Shopping Mall, Pyramid Hotels, Sunway Tower and Putra Place), colleges, medical centre and theme parks. On top of that, Sunway Berhad has interests in quarrying, building materials manufacturing and trading. As at Mar 2011, it has RM2.4b outstanding orderbook (construction) RM1.7b unbilled sales (property). Information: Ticker: - Shares Issued (m): 1,288.6 Market Cap (RM m) at issue price: 3,608.1 3-mth Avg Daily Volume (m): - KLCI: 1,561.77 Major Shareholders: % Tan Sri Dato’ Seri Dr Jeffrey Cheah 45.0 GIC 12.5

NOTE: Sunway City (SCITY MK) and Sunway Holdings (SGW MK) shares and warrants will be suspended from trading on 2 Aug 2011 for the listing of Sunway Berhad.

Sunway Berhad

27 July 2011 Page 2 of 16

Coming together

Two becomes one. Sunway City‟s merger with Sunway Holdings

under a new entity, Sunway Berhad, will see a finale this quarter with

the listing of the latter on the Main Market (possibly in end-August). The

exercise will create a group of: (i) RM23.7b in gross development value

(GDV) and 2,198 acres in landbank for the property development

business, and (ii) RM2b in outstanding order book for the construction

business. Sunway Berhad will rank 4th in GDV size, behind SP Setia

(RM45b), UEM Land (RM31b) and IJM Land (RM27b), but ahead of

MRCB (RM15b). Its market value will be RM3.6b, based on its RM2.80

issue price and RM5.9b at our SOP valuation (RM3.85 per share).

Property developers: Market value vs. GDV

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0 5 10 15 20 25 30 35 40 45 50

Market cap (RM b)

GDV (RMb)

UEMLand (11.2b cap, 31.0b GDV)

SP Setia(7.0b cap, 45.2b GDV)

Sunway Bhd(3.6b cap, 24.4b GDV)

IJMLand(3.8b cap, 26.8b GDV)

MRCB(3.2b cap, 15.2b GDV)

Mah Sing(2.0b cap, 12.4b GDV)

Source: Companies, Maybank IB

Sunway City-Sunway Holdings: Merger details

Offer price

Sunway City

- Ordinary share RM5.10 (RM1.02 cash + RM4.08 via Sunway Berhad share)

- Warrants RM1.29 (RM0.26 cash + RM1.03 via Sunway Berhad share)

Sunway Holdings

- Ordinary share RM2.60 (RM0.52 cash + RM2.08 via Sunway Berhad share)

- Warrants RM1.50 (RM0.30 cash + RM1.20 via Sunway Berhad share)

Sunway Berhad

- Ordinary share RM2.80 issue price

Free warrants

Entitlement 1-for-5 Sunway Berhad shares

Tenure 5 years

Exercise price (RM) 2.80

What it means (for holders of every 1,000 shares)

Sunway City (i) RM1,020 cash, (ii) 1,457 Sunway Berhad shares, (iii) 291 Sunway Berhad warrants

Sunway Holdings (ii) RM520 cash, (ii) 743 Sunway Berhad shares, (iii) 149 Sunway Berhad warrants

Status of merger Shareholders approvals received on 15 June 2011;

Both Sunway City and Sunway Holdings shares and warrants will be suspended from trading on 2 Aug 2011

Source: Companies, Maybank-IB

Sunway Berhad

27 July 2011 Page 3 of 16

Why merge? The merger will:

(i) Create a balance sheet size of RM2.4b in total net asset value,

which will place Sunway Berhad as number 4 in ranking among the

listed property developers in Malaysia – behind UEM Land

(RM3.9b), SP Setia (RM3.1b), and IGB (RM3.1b). The enlarged

balance sheet size will, in turn, enhance the group‟s resume in its

overseas drive, especially in the bidding for sizeable construction

and property development projects. Proforma group net gearing

(end-2010) will be 0.57x, but we expect this to come off to 0.51x by

end-2011. The internal target is to cap it at 0.5x.

(ii) Strengthen the group‟s competitiveness via cross-utilisation of

property and construction expertise from project design to

implementation. This will, in turn, enhance product quality. Sunway

Holdings has an experienced construction arm under 100%-owned

Sunway Construction. Breaking the “entity barrier” will provide for

better monitoring of quality with the construction arm‟s involvement

at each stage of the property development works cycle.

(iii) Create cost synergies with a direct flow to the bottomline. Sunway

City is well known in property development, while Sunway Holdings

also has a property arm largely via SunwayMas and it is involved in

property developments in Singapore via 30%-owned associates.

The merger will allow better utilisation of resources, paring down on

duplications. Pooling the procurement and treasury functions will

result in better discounts for raw materials and lower interest costs.

Management has guided on synergies to the tune of 1-2% of

revenue in the next 2 years. Based on the proforma 2010 revenue

of RM3.13b, this could translate into RM30m-RM60m savings p.a..

Three core businesses. Sunway Berhad group will be streamlined

under three core functions: (i) property (development and investment,

hospitality and leisure), (ii) construction (including precast concrete),

and (iii) investments (trading, manufacturing, quarry, healthcare). Some

of the businesses categorised under investments may be divested later

(RM95m identified under Sunway Holdings). We expect the property

business to contribute 69% to group EBIT in 2011 (assuming a full year

of merger), construction 23% and the other businesses 8%.

Sunway Berhad: New look (corporate and core businesses)

Source: Company, Maybank IB

Jeffrey Cheah Govt of Singapore Investment Corp

INTEGRATED PROPERTY

Property development

Property Investment, REIT

Hospitality

Leisure

CONSTRUCTION

Design & build

Building & civil

Geotechnical

Mechanical & electrical

Precast concrete

INVESTMENT

Trading & manufacturing

Quarry & building materials

Healthcare

Others

SUNWAY BERHAD

45%

12.5%

Property Groups’ NAV

Latest NAV (RM m)

UEM Land 3.9

SP Setia 3.1

IGB 3.1

Sunway Berhad 2.4

IJM Land 1.8

MRCB 1.3

Source: Companies, Maybank IB

Sunway Berhad

27 July 2011 Page 4 of 16

Management strength. Sunway Berhad‟s Executive Chairman will be

Tan Sri Jeffrey Cheah (founder) while the President will be Dato‟ Chew

Chee Kin. The captains of each operating functions under Sunway City

and Sunway Holdings are retained under Sunway Berhad:

Mr Ho Hon Sang for property development (Malaysia, Singapore)

Mr Ngian Siew Siong for property development (international)

Dato‟ Ngeow Yoon Yean for property investment

Dato‟ Jeffrey Ng for Sunway REIT

Dato‟ Tan Kia Lok and Mr Kwan Foh Kwai for construction

Dato‟ Tan Kia Lok for quarry

Dato‟ Yau Kok Seng for trading and manufacturing, and emerging

businesses.

In addition, some functions will be centralised, with Group Corporate

Development to be helm by Ms Sarena Cheah (also executive director),

and Group Finance under Mr Chong Chang Choong, the only relatively

“new name” in the management team. Mr Chong joined Sunway City as

Director of Group Corporate Affairs in Dec 2010.

Proposed board of directors: Distinguished names

Age Designation Resume

Tan Sri Jeffrey Cheah 65 Executive Chairman

An accountant by profession, Tan Sri founded the Sunway Group in 1974

Datuk Razman M Hashim 72 Deputy Executive Chairman

A banker, Datuk was the Deputy Chief Executive of Standard Chartered Bank Malaysia from 1994 until his retirement in Jun 1999

Dato’ Chew Chee Kin 66 President An economics graduate, Dato’ joined Sunway Holdings in 1981. He is the current President of Sunway Holdings

Lim Swe Guan 57 Independent, Non-Executive Director

A property man, Mr Lim was Director of Jones Lang Wootton Australia and Managing Director of Singapore’s GIC Real Estate Pte Ltd

Datuk Paul Low 65 Independent, Non-Executive Director

An accountant by profession, Datuk was the President of Federation of Malaysian Manufacturers (currrently Vice President), and President of the Transparency International Malaysia

Wong Chin Mun 67 Independent, Non-Executive Director

An accountant, Mr Wong was previously attached to Yeo Heap Seng and Nylex. Presently, he is a member of the National Barding Taskforce under the Ministry of International Trade and Industry

Sarena Cheah 37 Executive Director An MBA holder, Sarena joined Sunway Group in 1995 and again in 2003 after she completes her MBA. She is presently the Director of Strategic & Corporate Development of Sunway City (since 2009).

Source: Sunway Holdings’ circular to shareholders, 23 May 2011

Sunway Berhad

27 July 2011 Page 5 of 16

Much abound

Property development

RM14.5b effective GDV. Combining the landbank of Sunway City with

Sunway Holdings derive 2,198 acres with a GDV potential of RM23.7b.

Considering just the group‟s effective interest in joint development

projects derives RM14.5b in effective GDV (Jun „11). Of the RM14.5b,

65% is located in Malaysia with key projects comprising Sunway South

Quay, Sunway Velocity and Sunway Penang. Another 22% is in China

with one project each in Tianjin and Jiangyin. Singapore developments

made up 6%, and these include Sunway Holdings‟ 30% stake in five

remaining projects, in joint venture with Singapore‟s Hoi Hup Group.

Major property projects

Land size Devt period

Total GDV

Effective GDV

(remaining acres)

(remaining years)

(RM m) (RM m)

Malaysia

Sunway Damansara 18.2 5-7 826 495

Sunway South Quay 57.8 7-10 4,196 2,518

Sunway Melawati 30.6 3-5 555 555

Sunway Integrated Resort 18.0 5-7 660 660

Sunway Velocity 23.1 5-7 3,315 1,657

Sunway City Ipoh 899.2 more than 7 years

286 186

Sunway Penang 107.6 2-7 1,203 1,203

Bukit Lenang, Johor Bahru 64.0 5-7 932 746

Sunway Semenyih 398.1 more than 7 years

729 510

Sunway Duta 3.2 2-3 120 72

Casa Kiara III 2.9 2-3 230 184

Others 37.4 2-5 409 335

Sub-total 1,660.0 9,121

China

Sunway Guanghao, China 8.1 2-3 213 83

Tianjin Eco City, China 90.9 5-7 5,344 3,206

Sub-total 99.1 3,289

Singapore*

The Peak @ Toa Payoh 6.8 2.0 1,564 469

Vacanza @ East (60% sold) 4.8 2.0 1,081 324

Yishun 7.0 3.0 851 255

Tampines (2H 2011 launch) 5.0 3.0 1,070 321

Yuan Ching Rd (2H11 launch) 5.0 3.0 828 248

Sembawang (2H 2011 launch) 0.8 3.0 75 75

Sub-total 29.4 1,693

Elsewhere

Wonderland Business Park, Australia

91.2 5-7 612 187

Sunway Opus Grand, India 23.8 3-5 702 351

Sunway MAK Signature Residence, India

14.0 2-3 181 109

Sub-total 129.0 647

Total # 14,750

Note:

* Sunway’s 30% interest in the projects (except for Sembawang which is 100%);

# As at March 2011 (RM14.5b as at June 2011)

Source: Company

Sunway Berhad

27 July 2011 Page 6 of 16

Overseas landbank (before including Singapore)

Source: Company

RM2.3b sales target for 2011. This includes Sunway Berhad‟s joint

development projects, and is based on RM4.3b worth of launches for

2011 (2010: RM2.1b). As at Mar 2011, sales amounted to RM553b and

these include: (i) RM192m from Vacanza @ East, Singapore, (ii)

RM107m from Wonderland Business Park, Australia, and (iii) RM60m

from Sunway Nexis. The RM2.3b target represents a strong growth of

44% from 2010‟s RM1.6b by both Sunway City (RM1.2b) and Sunway

Holdings (RM0.4b). Unbilled combined sales stood at RM1.7b

(SunCity: RM1.2b; Sunway Holdings: RM0.5b) as at Mar 2011.

Sales trend

Source: Company

2010’s revenue and unbilled sales

Source: Company

Sunway Berhad

27 July 2011 Page 7 of 16

Positive enhancement from the MRT. 8 July ground-breaking for the

Sg Buloh-Kajang (SBK) line by PM Najib is a significant milestone in

cementing the government‟s commitment to the start of construction of

the 51km alignment. Sunway Berhad is a major beneficiary, with two of

its development projects located at the SBK line station stops: Sunway

Damansara (RM826m remaining GDV; Dataran Sunway station) and

Sunway Velocity (RM3.2b GDV; Cochrane station). The station stop

proximity could enhance the development values further. Every 10%

rise in the combined remaining GDV of these two projects could lift our

RNAV estimates for Sunway Berhad by 2 sen per share.

Riding on new MRT network

Source: Company

Investment properties to cushion earnings during downturn.

These include the two colleges (Monash University Campus and

Sunway University College), Sunway Giza Shopping Mall, hotels

(Sunway Hotel Georgetown, Sunway Hotel Phnom Penh and Sunway

Hotel Hanoi), Sunway Medical Centre, theme parks (Sunway Lagoon

and Tambun) and a 37% stake in SunREIT, the owner of reputable

Sunway Pyramid shopping mall (62% of SunREIT‟s total asset value).

These assets will provide steady rental and dividend income (SunREIT

RM64-70m dividend p.a. to the group) as well as property management

fees to Sunway Berhad. We expect 17-19% of our 2011-13 EBIT

forecasts for Sunway Berhad to come from this business segment.

Sunway Berhad

27 July 2011 Page 8 of 16

Construction

RM2b outstanding order book. This includes RM392m new jobs

secured this year comprising the upgrading of Ipoh Airport (RM37m),

Package 4 of Legoland Malaysia Theme Park in Johor (RM258m), Bio-

Xcell central facilities utility in Johor (RM74m), and piling works at Jln

Tun Razak, KL (RM22m). The concentration of job wins in the past 9

months have shifted towards domestic with 74% of the outstanding

RM2b (Jun 2011) being jobs in Malaysia and 26% overseas (Abu Dhabi

and Singapore). This compares with 57% overseas and 43% domestic

jobs based on its outstanding order book as at Oct 2010. We estimate

RM1.7b of the order book to be recognised this year.

Sunway’s construction order book (RM m)

Contract value

O/s @ Jun ‘11

Expected completion

Local

Government office buildings, Putrajaya 520 85 3Q11

Precinct 1, Putrajaya (hotel, office) 147 115 2Q12

Impiana Hotel 88 46 4Q11

Sunway office tower (sub-structure) 88 28 4Q11

Sunway Velocity (shop offices, apartments) 210 190 1Q13

Dairy product factory in Port Klang 129 44 3Q11

Putrajaya P7 & P8 infra and gas district cooling plant

70 61 GDC 4Q11; P7&P8 1Q12

UiTM campus expansion & KLCC link bridge 219 214 1Q 13

Legoland # 258 250 2Q12

Bio-Xcell – central facilities utility # 74 74 2Q12

Others 351

Sub-total 1,460 (74%)

Overseas

Abu Dhabi – Arzanah – Rihan Heights * 1,568 173 3Q11

Abu Dhabi – Rihan Heights (MEP) 326 67 3Q11

Abu Dhabi – Rihan Heights (stone & tiling) 66 4 3Q11

Abu Dhabi – Al Reem Island (Zone C, E) 461 89 2Q11

Singapore – Precast 510 176

Sub-total 508 (26%)

Total 1,968

# New in 2011; * Sunway has a 60% stake in the construction; Sources: Company, Bursa

Sizeable tender book. New job wins was about RM900m in 2010, and

the internal target is to replenish the order book by RM1.5b per annum.

RM392m new jobs for 2011 year to-date has met 26% of its full-year

target. The tender book stands at a sizeable rolling RM1.5b per month,

and potential new jobs are expected to come from in-house property,

10th Malaysia Plan and Economic Transformation Programme projects.

Sunway Construction has participated in tenders of the Klang Valley

LRT extension Package B and infrastructure works in SCORE, and the

pre-qualification of the Sg Buloh-Kajang MRT line elevated works. Our

forecasts have imputed RM1.2b job wins in 2011, RM1.5b in 2012.

Rising up the rank. We know Sunway Construction as a lean

construction group having started in the sub-contracting space and

progressed far to offer an entire range of construction services: civil,

structural, mechanical and electrical. It is experienced in both the

domestic and overseas markets (India, Abu Dhabi and Singapore). Its

past domestic jobs have largely been won through tenders. Within the

new Sunway Berhad, Sunway Construction remains under the

leadership of two veterans: Dato‟ Tan Kia Lok and Mr Kwan Foh Kwai.

With external jobs increasingly competitive, the construction arm will:

Sunway Berhad

27 July 2011 Page 9 of 16

- Focus on higher margin speciality construction services like

geotechnics and mechanical & electrical (M&E) works,

- Build new business in project management consultancy (PMC)

underpinned by the virtual design and construction (VDC) platform.

The VDC platform, we understand, is driven by Dato‟ Tan and it

uses “5-D” digital software to reduce design faults, construction

costs and delays, and improve quality. The “5-D” platform has been

implemented in the the current Putrajaya Hotel construction job.

The other businesses

Quarry: Malaysia. Sunway Berhad will continue to operate 7 quarries

and asphalt plants with a production capacity of 460k tonnes per month

(one production shift). Its market share in the Klang Valley has been

unchanged at 10% since 2007. Nationwide, its market share is 6%, and

the longer term plan is to regain the number 1 position. Based on the

year to-date monthly production of 315k tonnes and a RM25/tonne

selling price for ¾” aggregates, we estimate that the Malaysian quarries

are deriving a revenue of RM95m p.a.. Current off-take has been lower

from about 440k tonnes per month in end-2009, but this has been off-

set by higher selling prices (RM22/tonne in end-2009).

Quarry: Trinidad and Vietnam. The Trinidad quarry comes with a 5

+5 year contract (starting Jul 2008) to supply a minimum 5m tonnes of

aggregates to the Government of Trinidad at predetermined prices, and

with price adjustment clauses. At an average selling price of RM54/

tonne, the contract value is a minimum RM270m over 5 years. The

Vietnam quarries meanwhile are located in Hatay (Hanoi) and Vung

Tau (near Ho Chi Minh City) with a total production capacity of 210k

tonnes per month (52% utilisation rate).

The quarry operations contributed RM179m turnover and RM10.5m

pretax profit in 2010 on extremely thin margin of 5.9%. Margins have

been coming off from 20.7% in FYE6/08 (due to a lucrative Singapore

contract) to 9.9% in 18M FYE12/09 and 5.9% in 2010. We expect the

business outlook to remain challenging.

Sunway’s quarry operations

Monthly production (tonnes)

Monthly maximum production (tonnes)

Rock reserve (mil tonnes)

Malaysia – via Sunway Quarry

K Kangsar (Perak) 35,000 65,000 21

Rawang (Selangor) 40,000 60,000 8

Cheras (KL) 30,000 45,000 96

Kajang (Selangor) 100,000 120,000 23

Paka (Terengganu) 35,000 65,000 N/A

Melaka 35,000 60,000 20

Taiping 40,000 45,000 3

Total 315,000 460,000

Vietnam – via Sunway Holdings (Vietnam)

Hanoi 50,000 90,000 9

Vung Tau 60,000 120,000 9

Total 110,000 210,000

Trinidad – via Sunway Construction (Carribean)

Trinidad 55,000 100,000 33

Source: Company

Sunway Berhad

27 July 2011 Page 10 of 16

Building materials. The business comprises 3 sub-divisions: (i) pavers

manufacturing, (ii) pipes manufacturing (vitrified clay pipes mainly for

sewerage pipings), and (iii) wall panel manufacturing – located in both

Malaysia and China. In China, the group has two pavers manufacturing

plant in Shanghai and Dongguan and a spun pile plant in Zhuhai. The

operations contributed a RM10m loss in 2010, and in the four

preceeding years, it was hovering at break-even levels. We do not

expect meaningful contributions in the near-term.

Trading and manufacturing. The business will focus on strengthening

its brand, manufacturing partnerships and distribution channels. The in-

house brands are “Sunflex” and “Totalrubber” for hoses and fittings,

and “Suntrak” for heavy equipment parts. In Anhui (China), the group

produces track links and other heavy equipment parts (under a joint

venture with DCF Trek of Korea), and hydraulic couplings and fittings.

For the trading sub-division, the group distributes global brand names

like Furukawa, Airman, SANY and Lonking for heavy equipment,

among others. It distribution network is via 42 branches in 7 countries –

Malaysia, Singapore, Indonesia, Thailand, China, Australia and India –

with over 8,000 customers in 32 cities outside Malaysia.

Trading and manufacturing has seen the fastest growth at a pretax

profit CAGR of 33% over 2004-10 (16% turnover CAGR). It contributed

a pretax profit of RM38m in 2010 on a turnover of RM482m. We have

imputed a conservative 10% p.a. turnover growth assumption over the

next 3 years on steady 8% EBIT margin.

Sunway Global: Established footprint in China

Four core businesses. Sunway Global is a 77% subsidiary of Sunway Holdings with the remaining stake held by Goldman Sachs Strategic Investments LLC (22%) and key employees of Sunway (1%). Except for property development undertaken separately by Sunway Holdings, Sunway Global replicates the group’s core businesses in China: (i) geotechnical services, (ii) building materials production, (iii) industrial products manufacturing, and (iv) trading.

Well positioned within China. The building materials (interlocking pavers) manufacturing started in 2006 in Shanghai and Dongguan. Since then, the group has also expanded its geographical reach to the other major cities of China – Suzhou, Zhuhai, Tianjin, Guangzhou and Chengdu – and the Anhui Province. With a presence in fast-expanding Chinese cities, the geotechnical services and building materials units should benefit from China’s continuous construction programme, while industrial products and trading will ride on China’s economic growth.

Sunway Global’s core operations

Core operations Details

Geotechical services Comprises: (i) tunnel boring, (ii) diaphragm wall, (iii) foundation and piling

services.

Have undertaken tunnel boring jobs in Shanghai and Suzhou.

Building materials

(manufacturing)

(i) Paver plants in Shanghai & Dongguan.

(ii) Spun pile plant in Zhuhai, for port and shipyard projects.

Industrial products

(manufacturing)

(i) Fittings and automotive parts in JV with Xin Long.

(ii) Undercarriage parts in JV with DCF Trek (top 2 worldwide).

The plants are based in Anhui Province.

Trading >800 customer base over major cities in China.

Established presence in Shanghai, Tianjin, expansion to Guangzhou and

Chengdu.

Sunway Global could be the next engine of growth. Having sunk in a total CNY383m investment comprising CNY132m debt (35%) and CNY251m equity (65%), Sunway Global is expected to propel Sunway Holding’s growth from 2011. Sunway Global reported a net loss of CNY10.6m in FY08 (Jun) and it broke-even in FY09 (Dec). The spun pile operations which started in 3Q09 were loss-making in 2009, but all the other operations were profitable.

Source: Maybank IB, Company

Sunway Berhad

27 July 2011 Page 11 of 16

Sunway Global’s reach in China

Tianjin (trading)

Shanghai (pav er plant, trading)

Anhui Prov ince (fittings & auto parts plant, undercarriage assembly )

Chengdu (trading)

Dongguan (pav er plant) Guangzhou (trading)

Zhuhai (spun piles plant)

Macau (foundation & piling)

Source: Maybank IB, Company

Financials and valuations

13% 2010-13 net profit CAGR. Based on RM1.7b unbilled property

sales and RM2b outstanding construction order book, we forecast

RM332m net profit in 2011, RM402m in 2012 and RM443m in 2013.

Our assumptions are RM2.1b new property sales in 2011 and RM2.9b

in 2012, and RM1.2b construction job wins in 2011 and RM1.5b in

2012. Property will contribute 50% to group operating profit in 2011,

investment properties 19%, construction 23% and the other businesses

8%. Management‟s forecast of savings to the tune of 1-2% of revenue

could raise our 2012 net profit forecast by RM30m-RM60m (+8-15%).

Net gearing of 0.51x by year-end. Proforma group net gearing (end-

2010) is 0.57x and we expect this to improve slightly to 0.51x by end-

2011, still relatively high compared to peers under our coverage of 0.3x

average. This is mainly due to RM0.9b cash cost for its merger (20% of

consideration in cash) and the high upfront gross development costs for

Sunway Velocity shopping mall (we assume RM500m capex).

However, we expect net gearing to improve to 0.27x by end-2012 on

lower RM300m capex assumption and stronger cash flow from its

Singapore projects. The group has internal net gearing cap of 0.5x.

Dividend policy to come in later. We understand that Sunway Berhad

has yet to formalise a dividend policy. Our forecasts however assume

20% payout of net profit taking a cue from Sunway City‟s unofficial

payout policy of 20%. With support from its steady and stable rental

income from SunREIT and investment properties, we expect higher

payout from Sunway Berhad vs. Sunway Holdings‟ 11-12% in FY08-09.

Sunway Berhad

27 July 2011 Page 12 of 16

Valuations. Our target price of RM3.85 is based on sum-of-parts. We

value the: (i) property development business on RNAV i.e. land surplus

and discounted project cash flow (11.7-12.8% WACC), (ii) investment

properties at 7-10% cap rates, and (iii) price-to-earnings multiples for

construction (10x 2012), building material (10x) and trading (10x). At

our RM3.85 TP, Sunway Berhad would trade on 15x 2011 earnings,

and 12.3x 2012. This is not undemanding vis-à-vis its listed peers.

Peers valuation summary

Company Rec Share Price

Target Price

EPS (sen) PE (x) DPS (sen) Div Yield (%)

(RM) (RM) CY11 CY12 CY11 CY12 CY11 CY12 CY11 CY12

Glomac Buy 1.80 2.50 25.6 35.6 7.0 5.1 10.6 14.2 5.9 7.9

Mah Sing Buy 2.41 3.27 19.8 27.1 12.2 8.9 11.0 15.0 4.6 6.2

SP Setia Buy 3.91 5.00 13.7 18.8 28.6 20.8 12.4 16.9 3.2 4.3

Sunway Buy 2.80 3.85 25.7 31.2 10.9 9.0 6.9 8.3 2.5 3.0

Average (ex-Sunway) 15.9 11.6

Source: Maybank IB

Initiate with a Buy on Sunway City, Sunway Holdings, with implied

37% capital gains. We like Sunway Berhad for its:

(i) exposure in China and Singapore property markets which provide

long-term growth to its property business;

(ii) earnings profile which has a stable rental/dividend income base

(from its investment properties) which provides a cushion against

the cyclical construction and property development businesses;

(iii) larger market capitalization and shares trading liquidity which form

strong upward re-rating catalysts for the Sunway Group moving

away the current Sunway City-Sunway Holdings structure.

Our RNAV implies 37% upside potential for all the existing 4 investment

instruments: the “mother shares” of Sunway City and Sunway Holdings,

and their respective warrants.

Free float of Sunway vis-à-vis large cap property players

0

10

20

30

40

50

60

70

80

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

UEMLANDSP SETIA MRCB IGB SUNWAY KLCCP IJMLAND

%RM m freefloat (LHS) freefloat (RHS)

Sources: Bloomberg, Maybank IB

Sunway Berhad

27 July 2011 Page 13 of 16

Sunway - Suncity (via Sunway Bhd share + cash)

Sunway Bhd issue price (RM/sh): 2.80

Sunway SunCity Sunway-WC

SunCity-WA

Share price @ 26 July 2011 (RM/sh) 2.59 5.10 1.50 1.29

Less: cash distribution 0.52 1.02 0.30 0.26

Share price ex-cash distribution = a 2.07 4.08 1.20 1.03

Exchange ratio (no. of Sunway/Suncity shares and warrants in exchange for one Sunway Bhd share) = b

1.35 0.69 2.33 2.71

Implied entry cost to Sunway Bhd @ 26 July 2011 (RM/sh) = a x b 2.79 2.80 2.80 2.80

Sunway Bhd's RNAV (RM) 3.85 3.85 3.85 3.85

Upside (%) 37.9 37.4 37.4 37.4

Other details on merger:

Offer price (RM/sh) (for existing Sunway, SunCity shares & warrants) 2.60 5.10 1.50 1.29

Share funded portion (RM/sh) 2.08 4.08 1.20 1.03

The offer: On 25 Nov 2010, Sunway S/B offered to acquire SunCity‟s and SunHoldings‟ entire businesses via Sunway Bhd shares (also 1 free warrant for every five Sunway Bhd shares) and cash. The deal values SunCity at RM5.10/sh, SunHoldings at RM2.60/sh, SunHoldings-warrant at RM1.50/sh and SunCity-warrants at RM1.29/sh. 80% of the offer prices will be settled via Sunway Bhd shares and 20% will be paid in cash. The issue price for Sunway Bhd shares is RM2.80/sh.

Source: Company, Maybank-IB

Sunway Berhad

27 July 2011 Page 14 of 16

Sunway Bhd's RNAV estimates

1. Landbank - MARKET VALUE Stake Acres MV BV Surplus

(RMm) (RMm) (RMm)

Sunway Semenyih 70% 398.1 107.5 128.0 (14.3)

Suncity Ipoh 65% 899.2 60.6 58.7 1.2

Sunway Integrated Resort 100% 18.0 11.3 8.3 3.0

Sunway Tower KL 1 100% 1.0 57.0 28.3 28.6

Sunway JB, Bukit Lenang 80% 64.0 141.3 134.5 5.4

Tmn Equine 100% 33.0 38.7 37.8 0.9

Sg Long Balakong 80% 111 28.3 21.8 5.2

Mont Putra Rawang 100% 163 37.5 35.1 2.4

Sub-total: 32.5

2. Development projects - DCF

(WACC: 10.5-11.5%) Stake RMm

Casa Kiara 2 78% 1.3

South Quay 60% 250.9

Sunway Cheras 100% 1.8

Sunway Damansara 60% 85.6

Sunway D' Mont Kiara 88% 36.2

Sunway Monterez 100% 0.0

Sunway Kayangan 100% 4.5

Sunway Duta 100% 28.3

Bangi 100% 5.8

Sunway Melawati 100% 49.9

Casa Kiara III 80% 15.6

Sunway SPK 50% 0.0

Sunway Palazzio 50% 4.4

Sunway Alam Suria 50% 5.7

Sunway Velocity 50% 135.8

Penang projects 100% 148.1

Sunway Guanghao, China 65% 11.8

Tianjin Eco City, China 60% 180.3

Wonderland Business Park, Australia 31% 14.7

Singapore Yi Shun 30% 19.6

Singapore Tampines 30% 23.2

Singapore Yuan Ching Road 30% 19.9

Singapore Sembawang 100% 6.1

Vacanza @ East, Singapore 30% 25.7

Singapore The Peak @ Toa Payoh 30% 27.6

Sub-total: 1,102.9

3. Investment properties - MARKET VALUE Stake MV BV Surplus

(RMm) (RMm) (RMm)

Monash University Campus 100% 158.0 158.0 0.0

Sunway University College 100% 150.0 150.0 0.0

Sunway Giza (shopping mall) 60% 42.4 42.4 0.0

Sunway Hotel Georgetown 100% 17.8 62.2 (44.4)

Sunway Hotel Phnom Penh 52.5% 15.7 21.7 (3.1)

Sunway Lagoon Theme Park 100% 165.0 59.1 105.9

Lost World of Tambun 65% 38.7 36.0 1.8

Sunway Medical Centre 80% 88.2 213.6 (100.3)

Sunway Hotel Hanoi 100% 14.1 45.8 (31.8)

Sub-total: (71.9)

4. Other businesses or assets

36.6% stake in SunREIT based on Maybank IB's RM1.18 TP

285.8

Construction (10x 2012PER) 613.2

Building material (10x 2012PER) 218.3

Trading (10x 2012PER) 350.1

Grand total: 2,530.8

Shareholders fund (RMm) - Dec 2011 2,697.0

Warrants conversion (RM2.80 exercise price; expiring 2016)

721.6

RNAV (RMm) 5,949.4

Number of shares (m shares) 1,288.6

Enlarge share capital post warrant conversion 1,546.3

FD RNAV/share (RM) 3.85

Source: Company, Maybank-IB

Sunway Berhad

27 July 2011 Page 15 of 16

INCOME STATEMENT (RM m) BALANCE SHEET (RM m)

FY Dec 2010P 2011F 2012F 2013F FY Dec 2010P 2011F 2012F 2013F

Revenue 3,134.5 3,469.6 3,714.3 4,341.2 Fixed Assets 1,695.1 2,166.1 2,422.9 2,672.0

EBITDA - 458.9 504.2 591.8 Other LT Assets 2,319.0 2,245.2 2,145.1 2,017.7

Depreciation & Amortisation - (29.6) (43.7) (51.4) Cash/ST Investments 868.5 768.4 768.4 768.4

Operating Profit 592.1 429.3 460.4 540.4 Other Current Assets 2,142.3 2,404.7 2,779.6 3,341.8

Associate 73.2 71.2 67.9 70.4 Total Assets 7,025.0 7,584.4 8,116.0 8,799.9

JV companies 126.2 77.6 117.8 89.9

Interest (Exp)/Inc (74.2) (43.3) (37.2) (30.3) ST Debt 505.5 1,202.7 980.5 729.4

Exceptional Items 0.0 0.0 0.0 0.0 Other Current Liabilities 1,447.7 1,594.9 1,702.6 1,978.6

Pre-Tax Profit 717.3 534.7 609.0 670.3 LT Debt 1,823.6 932.1 932.1 932.1

Tax 280.2 (133.7) (152.2) (167.6) Other LT Liabilities 263.8 772.0 984.4 1,289.3

Minority Interest (309.2) (69.4) (54.9) (60.1) Minority Interest 385.8 385.8 385.8 385.8

Net Profit 688.2 331.6 401.8 442.6 Shareholders' Equity 2,598.6 2,697.0 3,130.6 3,484.7

Net Profit Ex. El 310.2 331.6 401.8 442.6 Total Capital 7,025.0 7,584.4 8,116.0 8,799.9

Revenue Growth % - 10.7 7.1 16.9

EBITDA Growth (%) - - 9.9 17.4 Share Capital (RM 'm) 1,288.6 1,288.6 1,288.6 1,288.6

EBIT Growth (%) - (27.5) 7.3 17.4 Net Debt/ (Cash) 1,460.5 1,366.3 1,144.2 893.1

Net Profit ex-EI Growth (%) - 6.9 21.2 10.2 Working Capital 1,057.7 375.6 864.9 1,402.2

Tax Rate % - 25.0 25.0 25.0 Gross Gearing % 89.6 79.2 61.1 47.7

Net Gearing % 57.0 50.7 36.5 25.6

CASH FLOW (RM m) RATES & RATIOS

FY Dec 2010P 2011F 2012F 2013F FY Dec 2010P 2011F 2012F 2013F

Profit before taxation - 534.7 609.0 670.3 EBITDA Margin % 33.8 13.2 13.6 13.6

Depreciation - 29.1 43.2 50.9 Op. Profit Margin % 18.9 12.4 12.4 12.4

Net interest receipts/(payments) - 58.7 52.6 45.7 Net Profit Margin % 22.0 9.6 10.8 10.2

Working capital change - (166.2) 1.9 (7.9) ROE % 26.5 12.3 12.8 12.7

Cash tax paid - (133.7) (152.2) (167.6) ROA % 9.8 4.4 5.0 5.0

Others - 0.0 0.0 0.0 Net Margin Ex. El % 9.9 9.6 10.8 10.2

Cash flow from operations 461.7 322.6 554.4 591.4 Dividend Cover (x) - 5.0 5.0 5.0

Capex - (500.0) (300.0) (300.0) Interest Cover (x) 8.0 9.9 12.4 17.8

Disposal/(purchase) - 15.4 15.4 15.4 Asset Turnover (x) 2.2 2.2 2.2 2.0

Others - 67.8 71.3 70.3 Asset/Debt (x) 4.9 3.6 4.2 5.3

Cash flow from investing 2,035.0 (416.8) (213.3) (214.3) Debt/ EBITDA (x) 3.0 4.7 3.8 2.8

Debt raised/(repaid) - 0.0 0.0 0.0 Debt/ Market Cap (x) 1.1 0.6 0.5 0.5

Equity raised/(repaid) - (905.8) 0.0 0.0 EV/EBITDA (x) 3.4 3.9 3.7 3.4

Dividends (paid) - 0.0 (66.3) (80.4)

Others - (58.7) (52.6) (45.7)

Cash flow from financing (2,265.9) (964.5) (118.9) (126.0)

Change in cash 230.9 (1,058.7) 222.1 251.1

Source: Company, Maybank IB

Sunway Berhad

27 July 2011 Page 16 of 16

Definition of Ratings

Maybank Investment Bank Research uses the following rating system:

BUY Total return is expected to be above 10% in the next 12 months

HOLD Total return is expected to be between -5% to 10% in the next 12 months

SELL Total return is expected to be below -5% in the next 12 months

Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings

BV = Book Value FV = Fair Value PEG = PE Ratio To Growth

CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio

Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter

CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset

DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share

NTA = Net Tangible Asset ROSF = Return On Shareholders‟ Funds

EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital

EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year

EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date

EV = Enterprise Value PBT = Profit Before Tax

Disclaimer

This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each security‟s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical rat ings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.

The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Bhd and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank Bhd, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.

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