News

• Proposed disposal of an office block (Imperia Building) together with a commercial area in Puteri Habour by UEM Sunrise to UEM Group for a cash consideration of RM137.8m (inclusive GST of RM7.8m).

• The Imperia Building is a 16-storey office tower with 3 storey car park and 20 retails lots and 251 basement car park, measures approximately 420k sf. The proposed disposal is expected to be completed by 3Q15. Financial Impacts

• The disposal is expected to realise a net gain of RM16.2m. The proceeds from disposal will used for partial redemption of the 450m redeemable convertible preference shares issued by Bandar Nusajaya Development Sdn Bhd (BND-RCPS) which will expired on 27 Nov 2015. The total redemption amount is circa RM901m.

• To recap, UEM Sunrise has proposed to issue 524.4m new shares to UEM Group at RM1.47 per share in Apr 15 to redeem the 450m BND-RCPS.

Highlights

• We are positive but not surprised by the disposal of office building to partly fund the redemption of BNDRCPS. The disposal price translates to RM309 psf, which we believe is fair given the market value from valuer is around RM125m (or RM291 psf).

• The main rationale of the new shares issued and disposal of office building is to maintain its stake in BND. If they are not redeemed, the conversion of 450m BND-RCPS will result in UEM Group having a direct 21.8% stake in BND which will dilute UEM Sunrise stake in BND from 100% to 78.2%.

• Given that BND is expected to contribute significantly to UEMS’ future earnings, the completion of this proposal would allow value accretion towards the group’s sharehol ders’ funds and thereby strengthen its capital position.

Risks

• Slowdown in Nusajaya sales; failure to achieve sales target; high-beta stock.

Forecasts

• TP is under review pending meeting with management.

Rating

HOLD

• Positives: highly liquid proxy to property sector; large war-chest for landbank acquisitions.

• Negatives: Share price is highly news-driven; vulnerable to external slowdown.

Valuation

• Given the sector headwinds UEMS faces currently, we maintain our HOLD call.
• TP is under review pending meeting with management.

Source: Hong Leong Investment Bank Research - 1 Jul 2015