'SunCity faces challenge in selling high-end units'

Property developer Sunway City Bhd (SunCity) faces a great challenge to sell a massive stock of RM1.2 billion houses, particularly the high-end projects in Mont Kiara and Bandar Sunway where sales have been slow, AmResearch says.

The group is aiming for RM330 million in residential sales this year but has so far achieved only RM130 million, the broker said.

The take-up rate for Bayrock South Quay in Bandar Sunway, which has 77 bungalows priced between RM4 million and RM7 million per unit, has stalled at 35 per cent since the soft launch in April last year.

Only about two-fifths of the Vivaldi project in Mont Kiara were sold, where there are 234 units priced at RM850 per sq ft.
"We understand from its management that the group is unlikely to bring prices down to speed up inventory liquidation," AmResearch said in a report yesterday to initiate coverage on the company.

Instead, SunCity plans to lure potential buyers with more attractive financial scheme for selected projects, such as no-interest payment during construction and no payment for up to 24 months, the report said.

AmResearch rates the shares of SunCity as a "hold", with a fair value of RM3.45. The stock appears "fairly valued" after its price more than doubled in March this year, the broker said.

SunCity fell 1.8 per cent to close at RM3.20 yesterday. The stock has risen 83 per cent this year, beating a 36 per cent rise in the FTSE Bursa Malaysia KLCI so far.

The primary catalyst for the shares continues to centre on SunCity's potential to cash out from its large portfolio of investment properties worth an estimated RM3 billion to RM4 billion via the set up of an real estate investment trust (REIT).

"We, however, are skeptical that the group can successfully launch a REIT given our concern over pricing and quality of assets to be injected," AmResearch said.

Aside from Sunway Pyramid shopping mall and Wisma Denmark, other assets that the group plans to sell into the property trust are not really suitable for a REIT, it pointed out.

Sunway Group had planned to float a REIT which holds its key assets that include office towers, retail malls, a hospital and university hostel by as early as 2007. The plan has been delayed so far, mainly due to unfavourable market conditions.

By Business Times (Posted on 8 Sept 2009)