News

• UEM Sunrise announced that it will sell a block of serviced apartments in Aurora Melbourne Central for A$120m or RM371m to Ascendes Hospitality Trust.

• The property comprises of 252 service apartments together with 10 car park lots and a restaurant on the ground floor.

• Only A$5m will be received as deposit with the balance to be paid upon completion of the building in 30 Sept 2019. Financial Impact

• Cont rary to current practice, the proposed disposal will not recognise any revenue during construction period and will only contribute in FY19, upon completion of the building. With net margin assumption of 22%, the proposed disposal will contribute circa RM83m (14% of FY17 forecast profit) to the company bottomline.

Pros/Cons

• We are positive on the proposed disposal as this will increase its cumulative new sales from RM1.18bn in 3Q15 to RM1.55bn, on track to achieve its full year sales target of RM2bn. We expect new sales from Conservatory and sales of an office in Imperia to help achieve its full year sales target.

• To recap, UEM Sunrise is also collaborating in a 60:40 joint venture with Ascendes to develop Nusaya Tech Park with total GDV of RM3.5bn. Phase 1 with GDV of RM315m is expected to be completed in 2016.

• In addition, UEM Sunrise still has remaining 2 Melbourne-based projects including Conservatory and 412 St Kilda Road with collective GDV of RM1.6bn to be developed.

• YTD unrecognised revenue stood at RM4.1bn, representing 2.4x of UEMS’ FY14 revenue.

Risks

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

Forecasts

• FY15-FY17 earnings were reduced slightly by 2% after factored in delay in revenue recognition for this service apartment sale.

Rating

SELL

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

Negatives

• Concent rated in Johor; vulnerable to external slowdown;

Valuation

• Given the sector headwinds UEMS faces currently, we maintained SELL call. TP is unchanged at RM0.94 with an unchanged 70% discount of RNAV to reflect risk of Johor concentration.

Source: Hong Leong Investment Bank Research - 4 Dec 2015