Investment Highlights

• We maintained our BUY recommendation on UEM Sunrise (UEMS) with an unchanged fair value of RM1.00 based on a 40% discount to its RNAV (Exhibit 1). We made no changes to our FY18-FY20 earnings forecasts.

• The Australian Financial Review on 8 Jan 2018 reported that Malaysia's UEM Sunrise is prepared for as much as a 10% default rate on the settlement of apartments in its A$330mil Melbourne Central Business District (CBD) tower due to tough market conditions and weak prices of Australian properties. It quoted UEM Sunrise managing director/chief executive officer Anwar Syahrin Abdul Ajib as saying that “if we can get more than 90% (on the settlement), we will be more than happy”.

• Despite the less-than-rosy outlook in Australia, UEM Sunrise said there are no defaults on its Melbourne apartment projects Aurora and Conservatory, and it is on track to settle the units which have been handed over. Aurora is fully sold while Conservatory has a take-up rate of 96% as at endDecember 2018. Hence, we believe there is no impact to our FY18-FY20 earnings forecasts.

• The settlement rate for Aurora has been encouraging considering that Aurora SP3 (137 completed units) and SP3A (70 completed units) which were handed over on 10 Sep 2018 and 3 Dec 2018 separately, has a settlement rate of 95% and 87%, respectively as at 31 Dec 2018. No issue is expected to affect the continuation of this positive trend.

• As for Conservatory, SP1 (338 completed units) was handed over and settled on 14 Dec 2018. In two weeks, UEM attained a settlement rate of 64%, collecting A$143.8mil. The proceeds will be used to settle the total project loan of A$180.0mil. The company anticipates to hand over and settle a further 50 units from the remaining 229 units (yet to be handed over and settled) to fully discharge its loan obligation for Conservatory.

• The loan obligation for Aurora should not be a problem because in addition to the A$99.7mil collected plus the settlement of the remaining SP4 and SP5, UEM expects to collect A$120.0mil in September 2019 from the en bloc sale of 252 units of serviced apartment to Ascendas Australia Hotel Trust signed on 3 December 2015.

• Meanwhile Aurora SP4 (489 units) and Aurora SP5 (281 units) are expected to be handed over and settled in May and Oct 2019 respectively, while the settlement of Conservatory SP2 (83 units) and SP3 (25 units) are expected to take place in Feb 2019.

Source: AmInvest Research - 10 Jan 2019