SUNWAY: Strategic Acquisition Powers Growth Trajectory, Target Price Raised

A recent investment bank research report from RHB highlights a significant strategic move by Sunway (SWB MK), designed to accelerate its growth and reinforce its market position within the property and real estate sector. The report, which maintains a ‘BUY’ recommendation, details a major acquisition poised to substantially enhance Sunway’s future prospects, leading to an updated target price.

Strategic Acquisition Overview

Sunway’s MYR11 billion offer to acquire IJM Corp is viewed favorably by analysts, deemed fair at a 15% premium to IJM’s last closing price. This bold move is expected to immediately boost Sunway’s landbank, unbilled sales, and construction orderbook. Furthermore, it will provide new exposure to lucrative port and toll road concessions, along with anticipated synergies from higher gross development value (GDV) and operational efficiencies stemming from IJM’s existing property developments.

The merger deal outlines an offer price of MYR3.15 per IJM share, to be satisfied with 10% cash and 90% in Sunway shares, issued at MYR5.65. The total consideration comprises MYR1.104 billion in cash and the issuance of 1.758 billion new Sunway shares. The acquisition is anticipated to be completed in 3Q26, pending shareholder approval at an Extraordinary General Meeting (EGM) expected within two months.

Key Strategic Benefits

Analysts believe the merger makes strong strategic sense, offering several key advantages. It is expected to significantly increase Sunway’s market capitalization, potentially positioning it as the eighth largest stock on Bursa Malaysia and increasing its weightage in the MSCI index. The acquisition will also reduce competition in the construction industry, benefiting Sunway’s subsidiary, Sunway Construction, in new job bids. Moreover, taking over IJM’s extensive landbanks in Johor (spanning about 880 acres) and Seremban (900 acres) will strengthen and widen Sunway’s market presence in crucial regions like Iskandar Malaysia and Seremban.

Additionally, the deal is set to capitalize on positive spillover from the East Coast Rail Link via IJM’s Kuantan Port, generating recurring income and enhancing cash flow. The combined entity’s landbank will expand significantly to 5,685 acres from its current 2,369 acres, making it comparable to other major developers in Malaysia.

Integration Challenges and Outlook

While the acquisition presents substantial opportunities, the report also acknowledges potential challenges during the post-merger integration phase. These include integrating an additional 3,000 employees into Sunway’s existing 12,000-strong workforce, potentially divesting non-core or less lucrative businesses, and a thorough study for integrating overlapping operations. Management has emphasized that successful integration is the immediate priority, with the full integration of IJM’s construction division into Sunway Construction possibly occurring in late 2026 or early 2027.

The indicative target price for Sunway post-merger is MYR6.16, which includes a 6% ESG premium given IJM’s strong ESG score of 3.1. This represents an upward adjustment from the previous target price of MYR6.08, reflecting the enhanced value and growth prospects from the acquisition. The overall outlook remains positive, underpinned by the strategic benefits and the projected increase in future earnings.