INVESTMENT HIGHLIGHTS

• Acquiring land in Kepong

• Strengthening presence in Klang Valley

• Project GDV at RM15b

• Minimal impact on balance sheet

• Project expected to launch in FY19

• Maintain BUY with revised Target Price of RM1.36

Acquiring land in Kepong. UEM Sunrise Berhad (UEMS) announced that its wholly-owned subsidiary, Sunrise Berhad has entered into a shareholders’ subscription agreement with Mega Legacy (M) Sdn Bhd (MLM) to subscribe for 500,001 shares (50%+1 share) in MLM for a total subscription price of RM279.3m. Simultaneously, MLM has entered into a sale and purchase agreement for the acquisition of 72.73 acres of land in Kepong from Datuk Bandar Kuala Lumpur for a purchase consideration of RM416.4m.

Strengthening presence in Klang Valley. We are positive on the acquisition as it will strengthen UEMS’s presence in Klang Valley. The acquisition is in line with UEMS’ strategy of diversifying its presence from Southern Malaysia to Central region of Malaysia. The said parcels in Kepong are adjacent to the Kepong Metropolitan Park, located approximately 13km north west of KL city centre. UEM Sunrise intends to replicate the success of Solaris Dutamas and Mont’ Kiara by undertaking a mixed development with an estimated GDV of RM15b with development period of 15 years on the said parcels. Meanwhile, connectivity of the said parcels will also be improved as two interchanges will be constructed connecting the said parcels to MRR II.

Minimal impact on balance sheet. The share subscription will be funded via internal generated funds. We estimate net gearing of UEM Sunrise to increase to 0.5x from 0.46x as of end FY17. Meanwhile, we gather that UEMS is looking to continue improve its cash flow via asset monetisation and inventory monetisation. UEM Sunrise recorded land sales of RM542m in FY17 while UEMS will continue its asset monetisation exercise in FY18 to unlock value of its landbank. Meanwhile, UEMS is focusing on clearing inventories and roll out new projects prudently to avoid build-up of inventories and improve its cash flow. Note that inventories of UEM Sunrise increased marginally to RM610m as at FY17 from RM585m as at FY16.

Source: MIDF Research - 16 Apr 2018