Investment Highlights

• We maintain our BUY recommendation on UEM Sunrise (UEMS) with a lower fair value of RM0.80 (from RM0.81) based on a discount of 45% to its RNAV (Exhibit 1). We cut our FY19–21 earnings forecasts by 12%, 15% and 16% respectively to reflect the timing of recognition.

• During a recent meeting, management updated us on its latest development. UEMS’ new high-rise township project in Kepong, namely Kiara Bay, will be the key highlight for FY20 and beyond. Situated on a 72.73-acre of leasehold land via a 50:50 JV with Mega Legacy Equity SB, the project 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 Kiara Bay’s maiden launch in late 4QFY19, featuring two towers of serviced residences (870 units) priced between RM500K and RM900K per unit with an estimated GDV of RM656mil. 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.

• Meanwhile in Australia, the SP4, SP5 and Ascendas bloc (remaining GDV A$638.7mil) of Aurora Melbourne Central are completed with full settlement by the end of 2019. In September 2019, UEMS and A-HTrust mutually terminated the contract of selling the 252 units of serviced apartment (Ascendas bloc) within its Aurora Melbourne Central to AHTrust at A$120mil following the disagreement on specifications of certain aspects relating to the property. The mutual termination will allow UEMS to seek and explore other opportunities that are more beneficial to the group. UEMS is currently evaluating the proposals with a target to conclude the sale transaction at more than A$120mil. Management noted the deal to be completed by the end of the year, hence expects revenue to be recognized in 4QFY19.

• The handing over of the Australian projects will also reduce the company’s net gearing from 50% to below 40% by the end of FY19. Beyond that, we believe the outlook for UEMS remains stable premised on its unbilled sales of local projects amounting to RM947mil which will provide earnings visibility for FY20. Furthermore, UEMS is in talks with several parties to dispose of sizeable amount of its landbank to unlock cash.

• The sales of local properties in general are still slower than expected. Hence we cut our FY19, FY20 and FY21 earnings forecast by 12%, 15% and 16% respectively to reflect the timing of recognition. Our fair value is reduced to RM0.80 (from RM0.81) based on a discount of 45% to its RNAV. Nonetheless, at current price, the stock still offers a potential upside of close to 20%. Therefore, we maintain our BUY recommendation on UEMS.

Source: AmInvest Research - 15 Oct 2019