KEY INVESTMENT HIGHLIGHTS

• Agreement with Ascendas Hospitality Trust cancelled

• UEMS targets to conclude en bloc sale with another purchaser by year end

• Neutral on the event if the sale price is maintained and within targeted completion date

• Maintain Trading Buy with an unchanged TP of RM0.91

Agreement with Ascendas Hospitality Trust cancelled. UEM Sunrise (UEMS) announced that it has mutually terminated the agreement of the en bloc sales with Ascendas Hospitality Trust (Ascendas) due to disagreement on specifications of certain aspects of the serviced apartment component of the Aurora Melbourne Central project. The agreement consisted of the sale of 252 units of serviced apartments, 10 car parks, 14,924 sq of ground floor retail area for a cash consideration of AUD120m (RM343.9m).

UEMS targets to conclude en bloc sale by year end. Following the lapse of agreement with Ascendas, UEMS will seek other opportunities in-line with its strategic objectives. It has received a written expression of interest from a potential purchaser to purchase the property on top of getting interest from other parties. Currently, it is evaluating the proposals and targets to conclude the sale transaction by end of the year.

Neutral on the event if the sale price is maintained and within targeted completion date. While this event may appear as a slightly negative turn due to uncertainties arising from the outcome of the en bloc sales, we are neutral at the moment pending the progress of negotiation with other interested parties. Note that the company has not recognised any revenue from the disposal to Ascendas. As the project has been completed, the payment milestones with the new potential buy should happen faster. This is supported by the success of the residential component of Aurora Melbourne Central, which has been fully sold and low key interest rates in Australia. We think that earnings impact may be minimal if the company can maintain the selling price and complete the deal within its targeted timeline. Meanwhile, this event is not expected to affect the remaining portion of the project with the handover of SP5 on track in October. Settlement rate is also expected to be positive.

Maintain Trading Buy with an unchanged TP of RM0.91. As such, we maintain our earnings forecast, target price and recommendation pending further development and details. At the current share price, the stock is trading at 67% discount to its RNAV, which we think is looking more appealing. Price to NTA is 0.49x. UEMS earnings to-date is still decent while new sales seem to be on track to meet management’s full year target. Risks to our call include longer-than-expected completion of the sale transaction and lower-than-expected selling price. Catalyst includes a better-than-expected selling price from this sale.

Source: MIDF Research - 17 Sept 2019