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Wednesday, January 9, 2008

Sunway Holdings close to exiting highway ops

The coast is clear for Sunway Holdings Bhd (formerly Sunway Holdings Inc Bhd) to transform into a regional player in the construction materials, quarrying and property development sectors, with the expected completion of the divestment of its 36.16% stake in Sunway Infrastructure Bhd (SunInfra) by the end of this month.

Sunway managing director Yau Kok Seng sees strong prospects for the group going forward, with 50% of earnings for financial year ending June 30 (FY08) expected to come from overseas, especially Singapore, India, China, Vietnam, and Trinidad and Tobago.

Sunway is close to exiting the highway concession business altogether with the completion of the debt restructuring for Sistem Lingkaran-Lebuhraya Kajang Sdn Bhd (SILK), a 100% unit of SunInfra.

Tan Sri Jeffrey Cheah

At a recent EGM, SunInfra shareholders approved the proposed cancellation of Sunway's undertaking granted to SILK in favour of the holders of the RM2.01bil Al-Bai Bithaman Ajil Islamic debt security (BaIDS) issued by SILK. The BaIDS bondholders had, on Aug 17, given the green light for the restructuring and refinancing of the BaIDS.

The exercise involved RM50mil cash and the transfer of Sunway's equity interest in SunInfra to the bondholders. After the exercise, the bondholders will take over the shares and management of SunInfra.

Sunway group chairman Tan Sri Jeffrey Cheah had said a few parties were keen to buy the stake in SunInfra.

SunInfra, through SILK, has a concession to collect toll at the RM1.25bil, 37km highway in Kajang until 2037. But poor traffic volume has affected toll collection.

The company no longer has to account for losses arising from SunInfra, as the investment was fully written down to nil in the last financial year.

Yau said the key growth areas for Sunway were the quarrying, construction and construction materials, both locally and overseas.

Since moving back to the quarry business two years ago, Sunway has captured second place in the Klang Valley market. It has seven quarries in Malaysia and two in Vietnam.

The company is also growing its core business of construction and its order book stands at more than RM2bil, of which about 50% comes from abroad.

Sunway is seeking new projects in Malaysia and overseas, especially in Trinidad and Tobago and the Middle East. Its construction, quarry and building materials divisions stand to benefit from the Ninth Malaysia Plan while the supply of construction materials to Singapore will also boost earnings.

Aseambankers Equity Research is raising Sunway's net profit forecasts for FY08 by 18% and by 12% for FY09 and 10% for FY10 on revised assumption for margins from its construction, quarrying and property development businesses.

It expects Sunway to deliver a stronger 152% growth in core net profit for 2007, and a three-year compounded annual growth rate of 59% versus 55% previously.

The research house remains positive on Sunway and rates the stock a “strong buy”.

By The Star (by

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