• Maintain NEUTRAL, with new MYR0.35 TP from MYR0.38, 13% upside. We are neutral on UEM Sunrise’s latest land acquisition. While we think the price is somewhat expensive, the new land may raise net gearing (0.50x as at 1Q22) next year as it could resort to borrowings to fund the acquisition. The land is slated for a mixed development project, potentially worth a GDV of MYR1.5bn. Our TP is now lower as we adjust our cost of equity assumption given the rising interest rate environment.

• New land in Semarak. UEMS announced that it has entered into a sale and purchase agreement with Nipponkey SB for the acquisition of a 6.39- acre freehold land located at Jalan Sultan Yahya Petra (formerly known as Jalan Semarak). The total purchase price is MYR384m, to be satisfied in cash (MYR235.8m) as well as in-kind ie 107.8-acre land in Gerbang Nusajaya worth MYR148.2m. While the first 10% deposit has already been paid, the second tranche of cash payment (MYR153.6m) is due around 1Q- 2Q23 and the last tranche in 4Q23. UEMS plans to fund the land acquisition via internal funds as well as bank borrowings.

• Land cost seems slightly expensive. The purchase price of MYR384m translates into a land cost of MYR1,380 psf, which appears to be somewhat expensive. The cost is also 25.6% of the estimated GDV of MYR1.5bn for the project. However, management explained that the land development order (DO) has already been obtained (but UEMS can still submit a revised DO), and the land has a plot ratio of 1:7.38.

• A mixed development project for new land. The land is located about 2.5km away from the KL Convention Centre, and situated at the intersection between Jalan Sultan Yahya Petra and Jalan Padang Tembak. Under the current DO, the development comprises one block of 5-storey shopping complex, 8-storey office, nine levels of car park spaces, three levels of basement car park spaces, one block of hotel and two blocks of 50-storey serviced apartments. The estimated GDV is about MYR1.5bn and the project is expected to be launched in 2024.

• Forecast. We keep our FY22F-24F earnings unchanged as the billings may only come in after 2024. Pending further guidance from management, we expect profit margin for the project to be thinner.

• Lower TP. The project’s incremental value to our RNAV estimate is fairly minimal. However, given the rising interest rate environment, we adjust our discount rate and hence, based on an unchanged 85% discount to RNAV and 2% ESG premium, our TP is lowered to MYR0.35.

Source: RHB Research - 5 Aug 2022