UEMS has entered into a Contract of Sale with Scape Australia Management Pty Ltd for the disposal of 252 units of serviced apartment forming part of Aurora Melbourne Central for a consideration of AUD125m (RM354.6m). We remain neutral on the news despite it being able to fetch a slight premium compared to the previous selling price of AUD120m as we note that the recognition of sale is now expected to be by 2QFY20 as opposed to the initial target of 4QFY19. We cut FY19 earnings by -14.7% to account for the delay in land sale from 4QFY19 to 2QFY20. Separately, we also take this opportunity to lower margins and progressive billing recognition in Malaysian projects to better reflect the current market environment resulting in FY20-21 earnings also decreasing by -14.5% and -25.3%. Maintain HOLD with a lower TP of RM0.73 based on a 70% discount to estimated RNAV of RM2.42.

NEWSBREAK

UEMS has entered into a Contract of Sale with Scape Australia Management Pty Ltd for the disposal of 252 units of serviced apartment forming part of Aurora Melbourne Central. The said disposal includes 10 car park lots and part of the ground floor retail area measuring 14.9k sqm. The transaction will be carried out at a cash consideration of AUD125m (or RM354.6m) at the exchange rate of AUD1 to RM2.8371.

Recall that the transaction of the sale with the previous purchaser has been cancelled which was initially anticipated to generate AUD120m in Sep-19 (subsequently targeted for 4QFY19) which was signed back in 3 Dec 2015. We gather that the termination was due to requests for changes in specifications which couldn’t be met.

HLIB’s VIEW

Neutral. We remain neutral on the news despite it being able to fetch a slight premium compared to the previous selling price of AUD120m as we note that the recognition of sale is now expected to be recognised by 2QFY20 as opposed to the initial target of 4QFY19. We gather that the delay is due to certain documentations which required more time to be concluded.

Details on the Aurora development. Aurora Melbourne Central is an 88-storey mixed-use development comprising 959 residential apartments, 252 serviced apartments, office suites and retail with a GDV of c.AUD800m. The project was completed in 3 stages, with the first stage (SP3) completed and handed over back in Sep-18 and the second stage (SP4) in May-19. The third stage (SP5), is slated to be handed over in Oct-19 while the en-bloc sale of serviced apartments is now targeted for Apr-20.

Forecast. We cut FY19 earnings by -14.7% to account for the delay in land sale from 4QFY19 to 2QFY20. Separately, we also take this opportunity to lower margins and progressive billing recognition in Malaysian projects to better reflect the current market environment resulting in FY20-21 earnings also decreasing by -14.5% and -25.3%.

Maintain HOLD with a lower TP of RM0.73 (from RM0.74) based on a 70% discount to estimated RNAV of RM2.42 after imputing the changes in our forecast. 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 - 25 Nov 2019