Selected financial report of interest : SUNWAY

SUNWAY
China MOU lapsed CONSTRUCTION
· Enters into MOU for a China property venture
Sunway announced yesterday that its memorandum of understanding (MOU) with the XuanCheng Municipal Government has lapsed and the company does not intend to enter into a definitive agreement. Recalled that Sunway had on 6 May 2010 entered into the MOU with
XuanCheng Municipal Government for the purpose of developing an integrated city, consisting of an international-standard entertainment park, exhibition centre, hotels, shopping malls, offices and residential units on land to be acquired from XuanCheng Municipal Government.

XuanCheng is a prefecture-level city in southeastern Anhui province, People's Republic of China. It lies 260 km to the west of Shanghai. Bordering the provinces of Jiangsu and Zhejiang, it covers an area of 12,340 sq km and has a population of 2.8m.
· Comments
We are concerned of this setback as we were not bullish on this venture. In terms of economic development, Anhui province lags behind that of its neighbour, Jiangsu and Zhejiang. Furthermore, industrial activities in Anhui province are mainly concentrated in Maanshan and Wuhu, rather than XuanCheng. We noted that GDP per capita of XuanCheng is RMB13,051 as compared to Sunway’s maiden property venture in Jiangyin, Jiangsu province which has GDP per capita of RMB91,538.
· Reiterate BUY call
Sunway remains our top BUY for the construction sector. This is premised
on (1) strong earnings growth of 67.6% in FY10, (2) undemanding forward
P/E valuation of 8.6x, (3) more landbank acquisition in the pipeline, and
(4) strength in securing overseas construction contracts. Our target price,
which is based on 10x P/E on mid FY11 EPS, remains unchanged at
RM2.61 as impact on FY11 earnings is negligible. Sum-of-parts valuation
is RM3.14
full report refer to ECM