UEM Sunrise

Aurora Melbourne Central (GDV: RM2.0b) was launched in 2014 and saw 90% take-up within 2 weeks of launch. It is one of the tallest developments along La Trobe Street, Melbourne’s CBD at 92- storey and enjoys direct connection to the Melbourne Central train station. The major component is residential with 959 units priced at an ASP of AUD10,500psm and the price is now 20% higher. Majority of the units are one-bedroom measuring 42-25sqm. The local-to-foreign buyer ratio stood at 60%:40%. There are also 252 service apartments units, which were sold as en bloc to Ascendas last year; which would serve as a service apartment hotel by an operator from Thailand. They have yet to sell the office block and retail component and targets to complete it by end 2016 to early 2017.

The Conservatory, Melbourne (GDV: RM1.0b) was launched in 2H15 as an exclusive high-end residential high-rise development (446 units, 42 storeys) priced at an ASP of AUD11,500psm. It is located along Mackenzie Street (near Aurora) with walking distance proximity to Carlton Gardens. Take-up rates were strong upon launch with 90% take-up within months of the launch. Most units are one-bedroom spanning 42-45sqm. There was a high content of foreign buyers (mainly from Asia) at 70% while the remaining was driven by locals. The retail podium has not been sold yet and UEMS is still contemplating on whether to retain or sell. It is notable that retail space occupancy rates are very high.

UEMS also has another project on St. Kilda Road, which is on the fringe of Melbourne’s CBD. The project has not been launched yet. The project GDV is RM1.5b and will be positioned as a luxury residential development targeting the owner-occupiers market. Thus, there is a higher provision of space (c. 60 sqm). While ASP has not been finalized yet, the best comparable of luxury products in the area are priced at AUD15k-16kpsm. The group targets to launch by 1Q17.

We currently have an UNDERPERFORM call on UEMS with a TP of RM1.00 based on 77% discount to its FD RNAV. 3Q16 net gearing went up to 0.43x (1Q16: 0.31x; 2Q16: 0.42x), which is still below our comfort level of 0.5x-0.6x. Given the heavy cash-flow commitments from their Australia projects, the group noted that net gearing will be on an uptrend and to manage it, they are looking at divestments, including land sales in SiLC Phase 3, Gerbang Nusajaya and potentially Puteri Harbour. The group also expects their inventories to increase from RM500m to RM1.0b by year-end and hopes to clear it to relieve its cash flow. However, if the group does not divest enough, we believe cash-calls will be a consideration, especially when there is sizeable landbanking. We think the stock will continue to be weighed down and potentially de-rate further as we foresee further earnings risks.

Source: Kenanga Research - 2 Dec 2016