SUNNINGDALE TECH: Windfall From Property Disposal In China

Excerpts from UOB Kay Hian report

Analyst: John Cheong

SUNN has entered into a sale and purchase agreement to sell its property in China.  Sunningdale CEO Khoo Boo Hor. NextInsight file photo The total consideration inclusive of taxes is S$28.9m and net gain is estimated to be S$13.4m, equivalent to 56.3% of 2018 net profit. This is a good opportunity for SUNN to dispose of a non-core asset and the net proceeds will provide additional funding to its business. Maintain HOLD and target price of S$1.50, pegged to peers’ average 2019F PE of 10.6x. Entry price is S$1.25.

WHAT’S NEW

• Entered into a sale and purchase agreement to dispose of a property in China. Sunningdale Tech (SUNN) on 11 Dec 18 entered into a sale and purchase agreement with Zhongshan Wanbaolongmen Wood Products to dispose of its property in Zhongshan, China for an aggregate cash consideration (inclusive of taxes) of S$28.9m.

• Disposal of non-core asset. SUNN had used the property as a factory in the past, but after a restructuring in 2Q16, SUNN no longer conducts business operations at the property and currently holds the property to earn rental income.

There is no mortgage on the property. Based on an independent valuation report as at 31 Dec 17, the market value of the property was approximately S$23.9m.

• Improved cash flow. This is a good opportunity for SUNN to dispose of a non-core and excess asset, and the financial gains from the proposed disposal will provide SUNN with additional working capital to fund its business operations and improve cash flow of the group.

The net book value of the property as at 30 Sep 18 was S$8.4m and the consideration represents an excess of S$19.1m over the net book value of the property.

The amount of gain from the proposed disposal is estimated at S$13.4m, after taking into account estimated taxes, relevant agent and professional fees and other associated transaction costs.

SUNN intends to use the net proceeds from the proposed disposal for general working capital purposes.

STOCK IMPACT
• Factory sale could boost cash flow and balance sheet. This disposal is expected to boost cash flow and improve SUNN’s balance sheet notably; the net gain is equivalent to 56.3% of 2018 net profit and could boost 2018F NAV per share by 7 S cents, or 3.6%.

Full report here.