Investment Highlights

• We maintain our HOLD recommendation on UEM Sunrise (UEMS) with a lower fair value of RM0.45 from RM0.48 based on an unchanged discount of 70% to its RNAV (Exhibit 1). We cut our FY20-FY22 net profit forecasts by 12%, 24 and 20% respectively to reflect the timing of recognition.

• During a recent meeting, management updated us on its latest development. Management noted that the key priority for FY20 is to maintain a strong balance sheet and preserve its cash flow. The completion of the Australian projects has also reduced the company’s net gearing to 35% as at 1QFY20 from 54% YoY while UEMS has fully sold the Aurora Melbourne Central and Conservatory as at 6 June 2020 with the remaining values of A$26mil and A$36mil respectively to be settled in 2HFY20.

• Management is currently evaluating the company’s initial sales target of RM2.0bil (including land sale). On a positive note, UEMS’ new high-rise township project in Kepong, Kiara Bay (Tower A) received sales and bookings rate of 31% as of 30 June 2020.

• UEMS is cautious on the market uncertainty and will launch its products accordingly. The company is planning to launch RM2.0bil worth of GDV for the remaining of 2020, namely Allevia Residence, Mont Kiara (High rise residence, GDV – RM541.8mil, Senadi Hills (mixed landed development, GDV – RM399.2mil), Frischia, Serene Heights Bangi (landed residential, GDV – RM35mil).

• To recap, UEMS acquired a freehold development site at 21– 53 Hoddle Street, Collingwood measuring 5,390 square meters in Melbourne for A$43mil. It is intended for a mixed use development with an estimated GDV of A$250mil. The company is planning to launch the project by the end of 2021.

• Meanwhile, the key growth for UEMS for FY20 and beyond will be the Kiara Bay project. Situated on a 72.73-acre leasehold land, 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.

• Nonetheless, we cut our FY20-FY22 net profit forecasts by 12%, 24 and 20% respectively to reflect the timing of recognition in view of the slower market condition.

• 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. As there is little upside potential, we maintain our HOLD recommendation on UEMS

Source: AmInvest Research - 16 Jul 2020