We maintain HOLD recommendation on UEM Sunrise (UEMS) with an unchanged fair value (FV) of RM0.25/share, based on a discount of 70% to our RNAV and a neutral ESG rating of 3 stars (Exhibits 3 & 4). The FV implies a FY24F PE of 13x, at parity to the average of larger cap property stocks currently.
According to The Edge Malaysia, UEMS intends to purchase Giant Mall in Kelana Jaya, Petaling Jaya (PJ), Selangor from Employees Provident Fund (EPF) with a consideration of at least RM150mil or RM383 psf.
The report indicated that UEMS plans to demolish the building in Giant Mall and redevelop the 9-acre land. The potential acquisition would bring UEM’s total landbank up to 8,541 acres (+0.11%) (Exhibit 1).
Assuming its land cost-to-estimated gross development value (GDV) at 15% to 20%, we expect that the land will carry an estimated GDV of between RM750mil to RM1bil, which will increase UEM’s remaining GDV by 1%.
The land is well connected to major highways such as Damansara-Puchong Expressway, which provides direct access via Federal Expressway to Kuala Lumpur city centre.
It is also surrounded by amenities, including healthcare centres (2km to KMI Kelana Jaya Medical Centre), education institutions (900m to UNITAR International University) and shopping mall (1.3km to Paradigm Mall) (Exhibit 2).
Given its prime location with great amenities, we are positive on the potential acquisition if the offer price is fair and reasonable.
The potential acquisition would also be UEMS’ second sizeable land acquisition in the affluent Petaling Jaya township following its previous purchase of 9.93 acres of leasehold factory land and buildings in Section 13, PJ in 2021. This will further strengthen UEMS’ portfolio in prime and upmarket locations following its successes in Mont Kiara.
Both parties are at the tail end of negotiations. The deal is anticipated to be announced as early as this week.
We maintain our earnings forecast and valuation pending further details on the potential acquisition.
As UEMS is currently trading at an unexciting FY24F PE of 12x, near its pre-pandemic valuations, we see limited upside potential at this juncture.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....