UEMS is carrying out various initiatives in Puteri Harbour as part of a rejuvenation plan in order to entice demand towards nearby projects. On the international front, UEMS will recognise contributions from projects with GDV of up to RM2.2bn in FY19. Management has guided there are currently no plans on carrying out new projects in Australia, aside from Mayfair. We note that construction of Mayfair will span over 2 years and commence upon receiving a take up rate of 60%-70%. We maintain our forecasts and HOLD call with an unchanged TP of RM0.79.

We met up with UEMS’ management and came out feeling neutral on the company’s prospects.

International contribution in FY19. The international region is expected to recognise contributions from projects with GDV of up to RM2.2bn in FY19 (Conservatory: RM296.1m, Aurora Melbourne Central: RM1.9bn). Recall that the revenue recognition of these projects are done upon completion of project. The proceeds from the handover of the units will be used to pare down borrowings raised for these projects. Management guided there are currently no plans on carrying out new projects in Australia, aside from Mayfair.

Mayfair, Melbourne. The latest international project was launched in September 2017 with an estimated GDV of RM1.1bn. The project is Melbourne’s first ultra luxurious high rise development designed by world renowned Dame Zaha Hadid together with Elenberg Fraser. We note that construction of the project will span over 2 years and commence upon receiving a take up rate of 60%-70% (current take up: 41%).

Puteri Harbour rejuvenation plan. UEMS is undertaking various projects in Puteri Harbour as part of a rejuvenation plan (e.g. creating attraction points, improving connectivity and placemaking intiatives). The planned initiatives (c.RM750m) in the pipeline over the next 3 years includes road widening, bus connectivity, a Convention Centre, One°15 Marina Puteri Harbour, Harbour Front – Promenade, and a Public Marina (Figure #3). We are positive on the long term impact of these initiatives as it should uplift demand for surrounding projects; bulk of UEMS’ landbank (over 75%) are located in Iskandar Puteri which includes pipeline projects such as Estuari (remaining GDV: RM5.9bn) and Residential South (remaining GDV: RM2.8bn).

Landbank. UEMS has a total of 12,880 acres (561m sqft) of landbank available for development, with over 8,896 (387m sqft) acres targeted for pipeline projects amounting over RM122.2bn of GDV (effective GDV: RM85.8bn, i.e. adjusted for stake). With regards to the region composition, Johor accounts for over 75% (9,782 acres) of the landbank and GDV, while Perak comes in second with 18.7% (2,405 acres). We note that the international region comprises only 0.2% (30.7 acres) of landbank remaining for development and that there are no immediate plans for international landbanking at the moment.

Forecast. Unchanged as the meeting yielded no major surprises. Maintain HOLD with an unchanged TP of RM0.79 based on a 70% discount to estimated RNAV of RM2.63 after factoring the delays in JV projects. We see lack of near term catalyst given the subdued sentiment for property outlook in Johor as well as potential bumpy earnings moving forward given the adoption of MFRS15 in the recognition of their overseas projects.

Source: Hong Leong Investment Bank Research - 11 Feb 2019