- We maintain our HOLD rating on UEM Sunrise (UEMS) with an unchanged fair value of RM1.29/share (45% discount to NAV). UEMS recently completed its acquisition of a third property in Melbourne, Australia.

- UEMS will pay A$58mil (RM161mil) for the 16k sq m property (c.A$337psf or RM935psf). It currently houses a 21-storey office building on 412 St. Kilda Road – one of the main routes into Melbourne’s CBD. The Victorian Police are its current occupants, but are expected to vacate it by mid-2016.

- UEMS subsequently intends to convert the building into an ‘ultra-luxurious’ residential development, which may also include retail ground floors and serviced apartments. We leave our earnings unchanged for now pending further updates on the proposed project. Funding is not a problem, as FY15F net gearing ratio is manageable at 23%.

- Earlier, UEMS had acquired two other CBD plots in Melbourne on La Troube Street and Mackenzie Street back in October 2013. The Aurora Melbourne project on La Troube Street – UEMS’ first foray in Australia – was an instant success with a 95% take-up rate achieved within two weeks of its preview last October.

- Meanwhile, the launch of the Mackenzie Street project (GDV: ~RM608mil) was supposed to be ready by yearend. Both of UEMS’ existing Australian projects account for RM2.8bil or <1% of the group’s remaining GDV pipeline of c.RM82bil.

- Riding on the back of the strong success of Aurora Melbourne, this new purchase solidifies UEMS’ solid progress in the Australian property market, as it continues to diversify beyond the core Nusajaya landbank.

- Over in Nusajaya, the group appears to be reshuffling its portfolio, the most recent being the tie-up with Japan’s Mitsui to offer built-to-suit developments for lease at Nusajaya Tech Park. This comes after the group had last May, terminated an MoU with Chinamall Holdings to develop a 1.4mil sf trade and exhibition centre in Gerbang Nusajaya for RM600mil.

- Our HOLD call on UEMS remains, as pre-sales momentum for its local projects will likely remain muted in the near-term, particularly in Johor (FY15F base new sales target of RM2bil vs. RM2.4bil achieved in FY14).

- A slight positive is the strong response to the recent launches at its Serene Heights Bangi development. All of the 121 units of the Acacia 2S-terrace homes (priced from RM550k onwards) were snapped up during a two-day launch (27 and 28 June).

Source: AmeSecurities Research - 4 Aug 2015