Investment Highlights

• We upgrade UEM Sunrise (UEMS) from HOLD to BUY with an unchanged fair value of RM1.00 based on a 40% discount to its RNAV (Exhibit 2). We made no changes to our FY18-FY20 earnings forecasts. UEMS’s share price has fallen by 20% since our previous update and the stock is trading at a discount of 26% to our fair value and 50% discount to its NTA. In view of the potential upside of over 30% and stable company outlook (strong new sales and take-up rate), we upgrade UEMS to BUY.

• UEMS registered a 9MFY18 net profit of RM236.3mil (+27.3% YoY) after stripping off exceptional items such as foreign translation differences and cash flow hedge. Despite making up 90.3% and 87.3% of our and consensus forecasts, we reckon this to be in line with expectations as we anticipate lower profit in 4Q due to the absence of land sale except for the sale of land to Kimlun (RM82mil) which is pending approval.

• 3QFY18 revenue and core net profit of RM430.1mil and RM34.6mil respectively were mainly contributed by the Aurora Melbourne Central project, followed by Almas and Estuari Gardens, both located in Puteri Harbour, Iskandar Puteri in Johor. The first separable portion of Aurora Melbourne Central (GDV RM260.4mil) comprising 127 residences and 10 office suites was completed in 3QFY18 with a strong settlement rate of 92%. UEMS is targeting to complete another 70 units (GDV RM85.2mil) by the end of 4QFY18.

• UEMS chalked up new sales of RM900.5mil (+34% YoY) in 9MFY18, whereby 30% came from inventories while the remaining from ongoing projects namely Mayfair, Residensi Solaris Parq, Mayfair, Serimbun, Kiara Kasih and Symphony Hills. With these, the company is on track to meet its annual target of RM1.2bil. The unbilled sales of RM4.7bil (RM4.9bil in 2QFY18) will be progressively recognized over FY18-20. Meanwhile the first separable portion Conservatory @ Melbourne (GDV RM669.9mil) is expected to commence settlement in Dec 2018 while full settlement is anticipated to be completed by 2019.

• As of 9MFY18, UEMS has launched 4 projects worth RM740.2mil namely Kondominium Kiara Kasih @ Segambut (RM300K, GDV RM215.7mil, take-up rate 71%); Serimbun @ Iskandar Puteri (RM630K-RM1.4mil, GDV RM139mil, take-up rate 84%); Residensi Astrea @ Mont Kiara (from RM1.2mil, GDV RM323mil, take-up rate 51%); and Eugenia @ Serene Heights Bangi (from RM659K, GDV RM62.5mil, take-up rate 35%).

• For 4QFY18, UEMS has lined up RM172.3mil worth of new launches namely Serene Heights 1B2 @ Bangi, Selangor (landed residential – GDV RM52mil), Aspira Park Homes @ Gerbang Nusajaya, Johor (landed residential – GDV RM95.3mil); and Parcel i6 @ Taman Nusantara, Johor (commercial – GDV RM25mil).

Source: AmInvest Research - 29 Nov 2018