Sunway’s building blocks of success

Solid foundation: Cheah is confident the Sunway group can ride out any potential headwinds in the economy.

IF you patronise Sunway Pyramid frequently, chances are you would have spotted Tan Sri Jeffrey Cheah walking around the mall.

It is something the entrepreneur – who has spent a large part of his life transforming the 44-year-old Sunway group from a tin-mining company into one with interests in property, hotels, education, healthcare and infrastructure – does religiously to keep in touch with what’s happening on the ground.

A recent video, which captured Cheah picking up rubbish while strolling around Bandar Sunway, shot by a part-time lecturer, went viral. The simple gesture caught many by surprise, given Cheah’s wealth and stature in the corporate world.

However, the businessman does not take his success for granted, despite having children and a set of professional managers running the organisation that includes three listed companies with a combined market capitalisation of RM15.3bil and property projects in Singapore and China.

“We look into the smallest details and take them into account in our projects to create a holistic living environment.

“There is a lot of land. But one must create the vibrancy for people to come, invest and stay in the development,” the 73-year-old founder and chairman of Sunway Group tells StarBizWeek in an interview.

He jokes that he has many more years before calling it a day with the retirement age raised to 95 with the return of Tun Dr Mahathir Mohamad as prime minister of Malaysia.

On a more serious note, Cheah is confident the Sunway group can ride out any potential headwinds in the economy.

He goes back to the 1997/98 crisis, which was the worst for him when the group was saddled with debts and had to sell some of its best assets.

Among them was the quarry business, which he had started in 1977, to an Australian-based company and part of the flagship Sunway Mall to Singapore’s sovereign fund, GIC Pte Ltd. The Singapore deal was not well received by Dr Mahathir, who was the premier then.

The disposals were, however, crucial to see through the Sunway Group which was bogged down by a gearing of 200% during the regional financial crisis.

Today, the group is back in the quarry business and well in control of the shopping complex.

“By far, 1998 was the worst crisis. It was a perfect storm, but we have learnt our lessons.

“We are now in far better shape to weather any slowdown or external shocks,” he says.

Sunway Bhd, the main listed vehicle which he 55.93% owns, has a gearing of 40% - one of the lowest in the sector. In addition, the group has flexibility in deleveraging the balance sheet further if it opts to dispose some of the investment properties to its real estate investment trust (REIT).

Sunway REIT Bhd, which has been declaring dividends per unit of more than nine sen, has 16 properties with a value of more than RM7bil. The target is to achieve a RM10bil property profile and it has room to gear up to the tune of some RM400mil.

Looking out for opportunities

On this score, Sunway has investment properties that are matured and can possibly be injected into the REIT for close to RM1bil. Among them are three education buildings, which still sit under Sunway’s books although the education programmes are run under the Jeffrey Cheah Foundation.

These buildings - Sunway University, Monash University and Sunway Monash-U Residences - have a combined value of some RM1bil.

“We can monetise these assets for the group.

“More importantly, it gives the group flexibility to land bank and take on more if the opportunity is right,” says Cheah, who is an accountant by training.

Other assets that still belong to Sunway and can be moved to the REIT are Sunway Velocity in Cheras and two office buildings that were built two years ago in Bandar Sunway.

Last year, Sunway acquired five parcels of prime land in the Klang Valley, forking out RM675mil. These acquisitions gave the group 37.4 acres of land, which can be developed even in the worst of slowdowns due to their location, says Cheah.

This year, it plans to develop two of the land parcels – an 8.45-acre site in Jalan Peel, Cheras, and 4.34 acres in Wangsa Maju in Setapak. The Wangsa Maju development, which has a gross development value (GDV) of about RM500mil, is a joint venture while the Cheras project is being shaped as a mixed development comprising serviced apartments, retail shops and offices with a GDV of RM2bil.

The other parcels in its portfolio includes 4.53 acres in Jalan Belfield, bought for RM165mil from the Genting family in July last year. It plans to undertake a mixed-use development featuring serviced apartments and lifestyle retail units with a combined GDV of RM1.1bil on that plot.

Replicating the success down south

Sunway’s next major development is in Iskandar, Johor, spanning 1,800 acres with a GDV of RM30bil.

Many developers are facing problems selling their units in Johor because of the sudden emergence of new land bank in the form of man-made islands such as the RM100bil Forest City.

However, Cheah is confident of Sunway Iskandar being a replica of the group’s successful Bandar Sunway township located between Petaling Jaya and Subang Jaya.

“We believe we can create the same vibrancy in Iskandar. We did it in Sunway City, Ipoh and it is a success,” he says.

Like many other developers in Johor, Sunway is also eyeing the market segment of Malaysians or Singaporeans working in Singapore but are unable to afford a property on the island state.

“We have to think out of the box how to tap the market. People believe in the brand and we have joined hands with companies such as NEC from Japan to develop smart city solutions for the Iskandar township,” he says.

The group has also signed up Japan’s leading developer Daiwa Housing to undertake landed property development there.

“In the next five years, we’ll see some changes ... I won’t say it would be complete, but it will be exciting.”

Expanding overseas

Sunway is also into property projects in Singapore and China.

This year, it expanded its Singapore foray where it has 13.02 acres, forking out S$801mil for its portion.

Meanwhile in China, it has launched the second phase of its Sunway Gardens project that has a GDV of RM600mil.

According to Cheah, it is already 80% taken up since the launch in July.

Big developers such as the Hong Leong and Berjaya groups have came out of property projects in China bruised,

But Cheah is confident of getting it right this time.

“It has been a long journey for us in China and we have paid our ‘tuition fees”,” he quips.

Going forward, the group is eyeing other markets to enter.

India, Indonesia and Myanmar are on its radar where it is looking for good local partners.

It had ventured into a few projects in India previously, but didn’t succeed very well.

Dividend stream

While the mood in the property market is subdued, Sunway has already met its sales target of RM1.3bil set for 2018.

Its unbilled sales, meanwhile, stand at RM1.5bil.

“The last five years we have been doing well and paying dividends,” says Cheah.

Shareholders of Sunway, who have been receiving dividends of about six sen per year, got a bonus in 2015 when the construction arm, Sunway Construction Group Bhd (SunCon), was listed.

SunCon, which is 64.5% owned by Sunway, has been a major contributor to the group in the last three years, as it is one of the beneficiaries of government spending to build infrastructure.

It has been quite aggressive in bidding for projects and is one of the main civil contractors for the MRT2 and LRT3.

It was also vying for the project delivery partner role in a joint-venture for the Kuala Lumpur-Singapore high-speed rail project.

Currently, its construction arm has an order book of RM6.3bil and both the infra projects make up one-third of its order book. But since the watershed May 9 election, the new Pakatan Harapan-led government has cut spending on infrastructure projects.

This has dampened investor interest in SunCon, which is down some 30% year-to-date and is trading at 13-16 times forward earnings.

The parent stock Sunway is less affected and is down by about 11% since the start of the year. At RM1.44, its price-to-earnings is at 8.10 times, according to Bloomberg data.

An optimist, Cheah is confident sentiment in the property market will return with the right policies in place.

As for its construction arm, which saw flattish core net profit in the first-half of financial year 2018, it will have to depend less on government projects.

“In 2019, with the government cutbacks, we should be thinking out of the box.

“With disruptive technology, one cannot be rigid. And we are a strong brand and deliver what we promise.”

Sooner or later, investors will notice and pay attention to what we do, he says.