Investment Highlights

• We downgrade UEM Sunrise (UEMS) to HOLD from BUY following the recent run-up in its share price, which now offers a limited upside. Our fair value remains unchanged at RM0.80 based on a discount of 45% to its RNAV (Exhibit 1). We make no changes to our FY19–21 net earnings forecasts.

• UEMS is disposing of a property in Melbourne for A$107.09mil (RM304.13mil). According to management, the proposed divestment allows UEM Sunrise to immediately unlock the value of the property at a gain in line with market value, and free up cash to enable the group to pursue other investments and venture opportunities.

• The property was acquired in May 2016 for A$58mil. The disposal, it added, is expected to be completed by the end of the year, and give rise to an estimated net gain on disposal of RM54.32mil (A$19.12mil).

• The property is located at the strategic corner of St Kilda Road and Bowens Crescent, one of the main arteries into the Melbourne Central Business District and flanked by a mix of office, residential and mixed-use towers.

• We believe this is part of the land/property sale of UEMS Group to unlock cash as management had highlighted to us in an earlier meeting. We believe this is positive for the company as the cash can be used to reduce the company’s gearing. We make no changes to our FY19 numbers as the company is making an exceptional gain which has no effect on the core net profit.

• We believe the outlook for UEMS remains stable premised on its local unbilled sales of RM947mil 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.

Source: AmInvest Research - 13 Nov 2019