Investment Highlights

• We maintain our BUY recommendation on UEM Sunrise (UEMS) with an unchanged fair value of RM1.08 based on a discount of 40% to its RNAV (Exhibit 2). We make no changes to our FY19–21 net earnings forecasts.

• UEMS registered its 1QFY19 net profit of RM30.1mil (+19% YoY). Despite making up 11% of both our and consensus full-year estimates, we reckon this to be in line with expectations as we expect earnings to be stronger in 2HFY19 with the completion of its Australian projects. The stronger 1QFY19 earnings were mainly contributed by a partial settlement of Conservatory and Aurora Melbourne Central.

• UEMS chalked up new sales of RM215.2mil in 1QFY19 (-50% YoY) whereby 54% were derived from the central region developments at Symphony Hills, Residensi Astrea and Serene Heights. Meanwhile, 38% were mainly contributed by the southern region at Iskandar Puteri, namely Aspira ParkHomes, Almas and Denai Nusantara. The remaining 8% were from projects in Melbourne, particularly the Conservatory. UEMS maintains its sales target of RM1.2bil for 2019, whereby the bulk of them will come in 2H19 from overseas projects.

• For the Australian projects, 207 units of the first separable portion of Aurora Melbourne Central, SP3 (GDV A$115.1mil) and 446 units of Conservatory (GDV A$322mil) have been completed with average settlement rates of 97% and 73% respectively. Meanwhile the SP4, SP5 and Ascendas bloc (remaining GDV A$638.8mil) of Aurora Melbourne Central are expected to be completed by 2H19 with full settlement by the end of 2019.

• UEMS launched 2 projects worth over RM160mil year to date, namely Aspira ParkHomes @ Gerbang Nusajaya (from RM529K, GDV RM101.8mil, take-up rate 88%); and Dahlia Phase 2, Serene Heights Bangi in May 2019 (from RM621K, GDV RM58mil, take-up rate 8%).

• We believe the outlook for UEMS remains stable premised on its unbilled sales of RM4.1bil while its FY19–20 earnings will be mainly supported by the 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 54% to 40% by the end of FY19. Maintain BUY.

Source: AmInvest Research - 24 May 2019