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 a 1HFY19 core net profit of RM107.8mil (- 58.3% YoY). Despite making up 41% 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, particularly in 4QFY19 with the completion of its Australian projects. The lower 1HFY19 earnings were mainly due to the contribution from land sales which took place in FY18. Meanwhile, local projects such as Residensi Astrea and Eugenia Serene Heights in the central region and Aspira ParkHomes and 68° Avenue in the southern region are still at early stages of their development, hence do not contribute much to the revenue. We expect UEMS to recognise stronger revenue in the coming quarters once the projects progress beyond the initial stages of construction.

• UEMS chalked up new sales of RM532mil in 1HFY19 (-19% YoY) whereby 52% were derived from the central region developments at Symphony Hills, Residensi Astrea and Serene Heights. Meanwhile, 44% were mainly from Iskandar Puteri, namely Aspira ParkHomes, Almas and Denai Nusantara. The remaining 4% were from projects in Melbourne, particularly the Conservatory.

• UEMS maintains its sales target of RM1.2bil for 2019 (45% as of 1HFY19), whereby the bulk of these will come in 2H19 from overseas projects. For 2HFY19, UEMS will launch the first phase of the Kepong Metropolitan development in 4Q featuring two residential blocks and retail with an estimated GDV of RM 656mil.

• UEMS has fully sold and completed the A$750mil Aurora Melbourne Central Aurora with two of its separable portions SP3 and SP4 (A$393million) handed over to the buyers at a settlement rate of 99% to date. The handover of SP5 valued at A$241mil will commence in October 2019. Meanwhile, UEMS has decided to divest the Mayfair site to realise its immediate potential value (A$95–105mil). Management noted the proposal has garnered interest from several potential buyers and plans to complete the transaction before year-end.

• We believe the outlook for UEMS remains stable premised on its unbilled sales of RM2.6bil 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 and below 40% in the following year. Maintain BUY.

Source: AmInvest Research - 29 Aug 2019