A stronger and larger Sunway

The new merged Sunway entity will be among the largest property and construction players in the region, with more focus on overseas projects and branding, particularly in China and Singapore.

The new Sunway entity, which is expected to be listed on the Main Market of Bursa Malaysia in the third quarter of this year, is the result of a merger between Sunway Holdings Bhd and Sunway City Bhd (SunCity).

To recap, last November, a new company (newco) called Sunway Sdn Bhd proposed to take over Sunway Holdings and SunCity in a RM4.5bil deal via cash and share swaps.

Shareholders of Sunway Holdings and SunCity agreed to the merger at an EGM on Wednesday.

Based on the RM2.80 issue price of the newco, under the takeover deal, the newco would have a market capitalisation of RM3.6bil.

Based on the financial results of Sunway Holdings and SunCity as at December 31, 2010, the newco would have a paid-up capital of RM1.29bil, assets valued at RM7bil and net debt of RM1.46bil.

After the merger, Sunway Group founder and chairman Tan Sri Jeffrey Cheah and the Government of Singapore Investment Corp (GIC) will have a 45% and 12.5% stake respectively in the newco.

Presently, GIC has a 21% stake in SunCity.

The newco would also have a 37% stake in Sunway REIT, known as the largest real estate investment trust in Malaysia.

Achieving better synergies

Cheah says the merger is aimed at creating a bigger entity for business scale, realising synergies between the group's property and contruction arms, and enhancing the brand of the Sunway Group.

“With a larger company and a stronger brand, I am confident we will be able to gain more partners in land development and construction projects,” he says.

After the merger, the newco will have three business arms consisting of integrated property, construction and investment.

The integrated property division (property development and investment, hospitality and leisure) is expected to be the biggest contributor to group revenue, with a 40% contribution.

The construction (design and build, building and civil, geotechnical, mechanical and electrical engineering, precast) and investment (trading and manufacturing, quarry and building materials, healthcare) divisions are expected to contribute 30% each.

Presently, the contruction division has an order book of RM2.4bil, with 70% of its projects in Malaysia, and the remainder in Abu Dhabi and Singapore.

According to SunCity director (group treasury and corporate affairs) Chong Chang Choong, the cost savings and operational efficiencies from the merger could be significant due to lower borrowing costs, higher discounts in the procurement of building materials and better collaboration between the group's property development, design and construction arms.

“The merging of treasury operations gives us a good platform to improve our credit ratings, and thus, we can tap the debt market directly and enjoy significant savings via lower interest rates,” he says.

Also, under the merged Sunway entity, all future material procurement will be on a bigger scale and thus, the group can negotiate for better terms.

Chong, who is also understood to be the chief financial officer for the newco, pointed out that synergistic benefits are not optimised under the present scenario where Sunway Holdings and SunCity are two separate listed entities.

“This is despite the fact that they are sister companies, with the construction arm under Sunway Holdings and property development under SunCity.”

Better collaboration

Cheah concurred, saying that in the past, there were inefficiencies due to work duplication and “turf protection” between the two sister companies.

“Better collaboration between the group's property arms will result in reduced construction time and costs, better designs, improved development quality and higher margins,” says Cheah.

The merger also marks a turning point in the group's project management and delivery capabilities, via its adoption of a virtual design and construction (VDC) software platform.

Cheah says that using the VDC software will help the group to reduce project design faults as well as construction delays and costs.

Cheah believes the Sunway group is the first property and construction company in Malaysia to use an advanced version of the VDC software, which is widely used in Germany and Sweden.

The newco has a land bank of more than 2,200 acres with a total gross development value (GDV) of RM25bil.

About 90% of the land bank, to be developed over the next five to eight years, is in Malaysia, with the remainder in China, Singapore, Australia and India.

Operations and projects in China and Singapore are expected to contribute 30% of group revenue by 2015.

In China, the Sunway Group is presently involved in joint-venture property developments in Jiangyin City (in Jiangsu Province) and the Sino-Singapore Tianjin Eco City.

In Jiangyin City, the group, via a joint venture with Shanghai Guang Hao Real Estate Development Co Ltd, is developing a 1,200-unit condomimium project with a GDV of RM466mil.

In the 7,500-acre Sino-Singapore Tianjin Eco City, the group is developing a 98-acre site which has a GDV of RM5.3bil over the next five to seven years.

Bullish on China

Cheah remains bullish on China despite concerns over its pace of economic growth, with data from the country's manufacturing and property sectors showing signs of a slowdown in recent months.

He says China still offers huge growth opportunities.

“Looking at the past 30 years, economic slowdowns in China are only short term. There may be a slowdown for one or two years, after which the economy is on an upcycle again.”

In Singapore, the group has been involved in residential developments with Hoi Hup Realty Pte Ltd since 2007. The GDV from ongoing projects in Singapore is in the region of S$1.67bil (RM4.1bil).

Cheah says the group is looking at acquiring more land in Malaysia.

“However, we have to be very selective. We want to build sustainable developments.”

In Malaysia, the 800-acre Bandar Sunway in Selangor is the crown jewel of the group's integrated township development.

Cheah points out that Bandar Sunway was turned from a derelict mining land in 1986 to the present integrated development consisting of a shopping mall, theme park, hospital, hotels, universities and commercial buildings all managed by the group.

He says he has received many offers to build integrated townships along the lines of Bandar Sunway in China, India and Vietnam but to date, no deals have been firmed up.

“The terms and conditions must be right.”

Remaining developments in Bandar Sunway include villas, condominiums and a commercial precinct on a 123-acre site in Sunway South Quay with a GDV of RM5.2bil.

The group is also developing the 23-acre Sunway Velocity Kuala Lumpur consisting of a shopping mall, hotel, shop offices and serviced apartments with a GDV of RM3.6bil.

Another project to be launched in the near future is a 300-acre hilltop development in the 1,346-acre Sunway City Ipoh.

By The Star