Investment Highlights

• We maintain our HOLD call on UEM Sunrise (UEMS) with an unchanged fair value of RM0.43/share based on a 60% discount to its RNAV and a neutral ESG rating of 3 stars (Exhibits 2 & 3).

• Notwithstanding the latest land addition which will add RM17mil to our RNAV, we cut our FY21–FY23F earnings forecast by 16%, 7% and 6% respectively to reflect slower progress billing and construction progress as full MCO restrictions currently could dampen 2H sales as well as slower recovery in its property investment and hotel operation.

• In its second land deal of the year after the acquisition of the Dutch Lady land in PJ in March, UEMS acquired a 6.9- acre parcel of freehold land in Taman Connaught, Cheras from Accolade Land Sdn Bhd for RM197mil cash. The land is directly connected to the Cheras-Kajang Highway, Jalan Cheras and a short drive to the Middle Ring Road 2 (MRR2).

• The acquisition price translates to RM659 psf and implies a cost-to-gross development value (GDV) ratio of 20%, which is at the high end of the 10%–20% range for mixed development in Klang Valley. Based on our channel checks, the asking price within Cheras for leasehold commercial land larger than 4 acres has a wide range of RM378 psf to RM885 psf.

• UEMS plans to develop 1.8mil sq ft of various types of products with an indicative GDV of RM1bil, aimed at young homeowners looking for residences with immediate accessibility into the city centre. The project, slated for a two-phase launch, is scheduled to launch its first phase in 2H2022.

• We are positive on the development given its strategic location with readily available public transportation infrastructure via the Taman Connaught MRT station. It is also a 15-minute drive to KLCC. With amenities nearby including Pantai Hospital Cheras and UCSI University (Exhibit 1), we believe this project will garner strong residential and retail interest from the convergence of convenience and accessibility.

• Nevertheless, the company’s short-term outlook remains uncertain as potentially longer lockdowns amid local Covid-19 development could lead to a slow earnings recovery from 1QFY21 loss of RM4mil.

• Currently, UEMS’ valuation is excessive at FY22F PE of 23x vs. an average FY22F PE of 12x for property stocks under our coverage.

Source: AmInvest Research - 8 Jun 2021