UEMS has entered into a Contract of Sale with One Investment Group Pty Ltd, Australia for the divestment of a site and building initially planned for the redevelopment of UEMS’ last Australian project (Mayfair) for a consideration of AUD107.1m (RM304.1m). UEMS is expected to fully recognise a net disposal gain of AUD19.1m by 20 Dec 2019. We maintain our forecasts and HOLD rating with an unchanged TP of RM0.74 based on a 70% discount to estimated RNAV of RM2.47.

NEWSBREAK

UEMS has entered into a Contract of Sale with One Investment Group Pty Ltd, Australia for the divestment of a site and building located at 412 St Kilda Road in Melbourne, Australia for a consideration of AUD107.1m (RM304.1m) at an exchange rate of AUD1:RM2.84. The site and building have a net lettable area of c.16k sqm, 174 car park bays and was initially planned for the redevelopment of UEMS’ last Australian project, Mayfair.

HLIB’s VIEW

Slight positive. We are slightly positive on the news despite the change in plans from developing a luxurious high-rise project to a land sale as UEMS will be able to immediately realise the potential value of the land. Note that the planned development did not garner sufficient take-up required (i.e. 60%-70%) in order for construction to commence as it was hovering around 40%. The consideration of AUD107.1m represents a P/B multiple of 1.35x towards its book value of c.AUD79m comprising of: i) AUD58m land cost; and ii) AUD21m capitalised cost. UEMS is expected to fully recognise a net disposal gain of AUD19.1m by 20 Dec 2019. Net gearing is expected to improve to 0.39x from 0.43x (as at 2Q19).

Initial plans. The initially planned project, Mayfair, 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. Construction of the project was targeted to commence only upon receiving a take up rate of 60%-70%m.

Forecast. Unchanged as earnings recognition of Mayfair will take place only after 2023, based on our estimates.

Maintain HOLD as our TP of RM0.74 remains unchanged based on a 70% discount to estimated RNAV of RM2.47 after imputing the disposal gain and removal of potential RNAV of the project. We see a 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 - 19 Nov 2019