Investment Highlights

• We maintain our BUY recommendation on UEM Sunrise (UEMS) with a revised fair value of RM1.08 (previously RM0.96) based on a revised discount of 40% (from 45%) to its RNAV (Exhibit 2). We lower the discount to RNAV given the renewed optimism on the possible revival of the HSR and potential from its Kepong project. We make no changes to our FY19–21 net earnings forecasts.

• We believe the revival of Bandar Malaysia will lead to the continuation of the Kuala Lumpur-Singapore High-Speed Rail (HSR) project as Bandar Malaysia was supposed to host the terminus of the HSR. UEMS will be one of the key beneficiaries given its huge landbank of 4,550 acres at Gerbang Nusajaya with a remaining GDV of about RM45bil, where the Iskandar Puteri station would be located under the original plan.

• UEMS’ ongoing projects in Gerbang Nusajaya include Aspira ParkHomes, Melia Residences and Nusajaya Tech Park, all of which have a combined GDV of RM679.2mil.

• Meanwhile in the central region, UEMS is planning a new high-rise township in Kepong on a 72.73-acre of leasehold land via a 50:50 JV with Mega Legacy Equity SB. The land is adjacent to Kepong Metropolitan Park. The JV plans to develop a mixed residential and commercial development with an estimated GDV of RM15bil over a 15-year period. Management is targeting its maiden launch in 4QFY19, featuring two towers of serviced residences priced between RM500K and 900K per unit. We expect the project to be wellreceived given its strategic location along the MRR2 (within 5km from DUKE, NKVE and LDP) and a growing young population in that area.

• For the Australian projects, 207 units of the first separable portion of Aurora Melbourne Central, SP3 (GDV A$115.2mil) and 446 units of Conservatory (GDV A$322mil) have been completed with settlement rates of 100% and 70% respectively. Meanwhile the SP4, SP5 and Ascendas bloc (remaining GDV A$638.7mil) of Aurora Melbourne Central are expected to be completed by 2H19 with full settlement by the end of 2019.

• We believe the outlook for UEMS will remain stable premised on its unbilled sales of RM4.4bil while FY19–20 earnings will be mainly supported by Australian projects which are due for completion in 2H19. The handing over of the Australian projects will also reduce the company’s net gearing from 50% to 40% by the end of FY19. Maintain BUY.

• For FY19, UEMS is targeting new sales of RM1.2bil, focusing on the mid-market and reasonably sized pocket launches in matured locations. Aspira Park Homes @ Gerbang Nusajaya, Johor (landed residential – GDV RM186mil) was launched in January 2019 and saw a take-up rate of 66%. On top of that, UEMS will roll out Serimbun 2 Phase 1 @ Iskandar Puteri, Johor (landed residential – GDV RM122mil); new phases of Serene Heights @ Bangi, Selangor (landed residential – GDV RM192mil); and a new development in Kepong, KL (high-rise residential – GDV RM640mil).

• To recap, UEMS launched 5 projects worth over RM900mil in FY18 which saw good take-up rates, namely Residensi Astrea @ Mont Kiara (from RM1.2mil, GDV RM323.0mil, take-up rate 60%); Kondominium Kiara Kasih @ Segambut (RM300K, GDV RM215.7mil, take-up rate 97%); Serimbun @ Iskandar Puteri (RM630K-RM1.4mil, GDV RM139mil, take-up rate 79%); Eugenia @ Serene Heights, Bangi (from RM659K, GDV RM62.5mil, take-up rate 75%); and 68° Avenue (from RM955K, GDV RM167.7mil, take-up rate 66%).

Source: AmInvest Research - 24 Apr 2019