News

It was reported in The Star that UEMS has recently completed its third acquisition in Melbourne for AUD58m (RM161m) which is earmarked for a luxury residential project. The project is at 412 St Kilda Road (one of the main roads to Melbourne CBD) which already has a 21-storey office building (16,000sqm) on it.

Comments

We have verified with the management who confirmed the news. We gather that 10% of the land payment is due upon signing, 10% by year-end and the remaining balance is due in mid-2016. We expect FY16 net gearing to inch up to 0.22x from the current 0.20x, which is still manageable levels.

It is not surprising that UEMS is increasing its overseas exposure considering how well Aurora has done. Additionally, the group is actively trying to reduce dependency of Johor and move towards Klang Valley and other property corridors in Malaysia.

Overall, we are neutral to slightly positive on the project. The project GDV is AUD240m (RM666m) and only increases our FD RNAV by 1.0 sen (<1%) to RM4.27 and we reckon launching will take place in late 2016 to 2017. While the impact to the company’s valuation is not material, this project will help buoy near term sales as was the case in FY14 via Aurora and will continue to so in FY15 from remaining units in Aurora and The Conservatory. Since the project already has a building on it, we reckon this will be meant for a massive refurbishment rather than a green-field development, which would help justify the high land-to- GDV ratio of 24%. Recall back in Apr-2014, the group acquired Aurora and The Conservatory land (GDV combined of RM3.02b), which implied a land-to-GDV ratio of 6%, which is very attractive.

Outlook

The Group’s KPI of achieving at least RM500m earnings in FY15 appears to be more bullish than ours. However, we reckon that in order for the group to meet their target, a strategic lumpy land sale must take place; we have not factored for this in our estimates, save for the sale of Imperia Building. In 2015, sales will be largely driven by Australia while the group has lined up some new launches in Johor and Klang Valley in the next two quarters.

Forecast

No change to earnings estimates.

Rating

Maintain MARKET PERFORM

Valuation

No changes to TP of RM1.10 based on 74% discount to our FD RNAV of RM4.27. Although the stock is trading at a deep discount to its own book value at 0.7x FY15E PBV, we reckon the stock lacks near term excitement sector-wise and on company specific whilst its sizeable exposure to Johor continues to overshadow its overall performance.

Risks to Our Call

(i) Balance sheet risk, (ii) weaker-than-expected property sales, (iii) higher-than-expected sales and administrative costs, (iv) negative real estate policies, and (iv) tighter lending environment.

Source: Kenanga Research - 4 Aug 2015