Investment Highlights

• We maintain our HOLD recommendation on UEM Sunrise (UEMS) with an unchanged fair value of RM0.80 based on a discount of 45% to its RNAV (Exhibit 2). We make no changes to our FY19–21 net earnings forecasts.

• UEMS registered a 9MFY19 core net profit of RM149.1mil (-46.3% YoY). Despite making up 64% and 61% of our and consensus full-year estimates, we reckon this to be in line with expectations as we expect earnings to be stronger in 4QFY19 with the completion of its Australian projects. 9MFY19 revenue was mainly made up of projects from: (i) Aurora and Conservatory in Australia; (ii) Residensi Astrea and Eugenia Serene Heights in the central region; and (iii) Aspira ParkHomes and 68° Avenue in the southern region.

• UEMS chalked up new sales of RM720mil in 9MFY19 (-20% YoY) whereby 52% were derived from the central region developments at Symphony Hills, Solaris Parq, Astrea and Serene Heights. Meanwhile, 45% were mainly from the southern region, namely Aspira ParkHomes, Estuari and Almas. The remaining 3% were from projects in Melbourne, particularly the Conservatory. UEMS maintains its sales target of RM1.2bil for 2019 whereby 71% has been achieved as of early November.

• UEMS has fully sold and completed the A$750mil Aurora Melbourne Central with two of its separable portions SP3 and SP4 (A$393million) handed over to buyers at a settlement rate of 100% to date. The handover of SP5, valued at A$241mil, was carried out progressively from 16 Sep 2019.

• UEMS unveiled its latest high-rise township project Kiara Bay in October 2019. Kiara Bay is a leasehold 73-acre integrated township next to KL Metropolitan Park, to be built via a 50:50 JV with Mega Legacy Equity SB. The JV plans to build a mixed residential and commercial development with an estimated GDV of RM15bil over a 15-year period. Kiara Bay will be the key highlight for FY20 and beyond for UEMS.

• The first phase of Kiara Bay will be a high-rise residential tower comprising 870 condominium units with built-ups ranging from 800 sq ft to 1,250 sq ft. The selling price ranges from RM500K to RM900K, with an estimated GDV of RM656mil. We expect the project to be well received given its strategic location along the MRR2 (within 5km from DUKE, NKVE and LDP) and a growing young population in that area.

• We believe the outlook for UEMS remains stable premised on its unbilled sales of RM2.4bil while its FY19–20 earnings will be mainly supported by the Australian projects which are due for completion in 4QFY19. The handing over of the Australian projects will also reduce the company’s net gearing from 54% to below 40% by the end of FY19. Maintain HOLD.

Source: AmInvest Research - 27 Nov 2019