Investment Highlights

• We upgrade UEM Sunrise (UEMS) from HOLD to BUY 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 FY20–21 numbers while introducing FY22 net earnings forecast at RM152.2mil. UEMS’ share price has fallen by 15% since our previous update and the stock is trading at a discount of 29% to our fair value and 60% discount to its NTA while fundamentals persist. In view of the potential upside of 29% and stable company outlook (positive new sales and take-up rate), we upgrade UEMS to BUY.

• UEMS’ FY19 core net profit of RM278.4mil (-14.2% YoY) came in above our and market expectations. The strong earnings were mainly driven by projects from: (i) Aurora and Conservatory in Australia; and (ii) Residensi Solaris Parq, Residensi Astrea, and Kiara Kasih in Malaysia.

• UEMS chalked up new sales of RM1,134mil in FY19 (-19% YoY) whereby 54% were derived from the central region developments mainly from Aspira ParkHomes (Gerbang Nusajaya), Residensi Solaris Parq, Residensi Astrea, Verdi Symphony Hills & Serene Heights Bangi. Meanwhile, 44% were largely from the southern region, namely Aspira ParkHomes, Estuari and Almas. The remaining 2% were from projects in Melbourne, particularly the Conservatory.

• UEMS is targeting total sales of RM2.0bil including the disposal of industrial plots in SILC. On top of that, the company has lined up several launches in 2020 with a combined GDV of RM2.0bil, mainly at the central region. Management also said it is looking to dispose of RM400–500mil worth of non-strategic lands in this year and utilise the proceeds for the acquisition of potential strategically located lands and/or assets.

• UEMS has sold 99% of the Conservatory project with a settlement rate of 89% to date. Around A$43mil is still pending settlement. Management indicated that it will achieve full settlement for both Aurora Melbourne Central and Conservatory by the end of this year.

• 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.

• The first phase of Kiara Bay will be a high-rise residential tower, namely Residensi AVA 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 a 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 RM1.8bil while its FY20–21 earnings will be mainly supported by the Australian projects which have been completed and the new Kiara Bay. The completion of the Australian projects has also reduced the company’s net gearing from to 32% as at FY19 from 51% YoY. Upgrade to BUY.

Source: AmInvest Research - 25 Feb 2020