Investment Highlights

• We maintain our HOLD call on UEM Sunrise (UEMS) with a revised fair value of RM1.00 (from RM1.25) based on a 40% discount to its RNAV (Exhibit 1).

• We cut our FY18 earnings by 1 .1% while increasing FY19 by 7.7% after imputing new information and assumptions into our model. We expect UEMS to register net earnings of RM243.4mil, RM271.3mil and RM233.2mil for FY18-20 respectively.

• UEMS has numerous ongoing key projects, namely Serene Heights @ Bangi (landed residential, GDV RM3.1bil), Solaris Parq @ Dutamas, KL (high-rise residential, GDV RM2.9bil), Estuari, Puteri Harbour (mixed development, GDV RM6.5bil), East Ledang @ Iskandar Puteri (landed residential, GDV RM4.1bil) and Almas, Puteri Harbour @ Iskandar Puteri (mixed development, GDV RM1.9bil).

• In April 2018, UEMS acquired 72.7 acres of land in Kepong from the Kuala Lumpur City Hall (DBKL) at RM416.4mil via a 50:50 JV with Mega Legacy Equity SB. The land is adjacent to the 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.

• In 1HFY18, UEMS has lined up RM356.8mil of new launches (high-rise and landed residential), with key selling points being: (1) affordability for Kondominium Kiara Kasih units in Segambut @ RM300K – GDV RM218mil); and (2) “naturethemed” units in Serimbum, Iskandar Puteri @ RM630K- 1.4mil – GDV RM139mil.

• Meanwhile, the unbilled sales of RM4.8bil together with a slew of new launches in FY18-FY19 will boost its revenue in the near term.

• UEMS has a total landbank of 12,926 acres, with a remaining GDV of RM109.1bil where RM78.1bil are new projects while the balance RM31.0bil are yet-to-be-launched ongoing projects. These are mainly located at the southern and central regions, providing earnings visibility and driving the company’s growth well into the next decade.

• Nonetheless, we remain cautious on the property sector due to: (1) the generally still elevated home prices; (2) the low loan-to-value (LTV) offered by banks; and (3) house buyers' inability to qualify for a home mortgage due to their already high debt service ratios (DSR). In addition, the still subdued consumer sentiment against a backdrop of rising cost of living and elevated household debts is holding consumers back from committing themselves to the purchase of bigticket items like a house. However, we do see a bright spot in the affordable segment.

Source: AmInvest Research - 1 Aug 2018