Investment Highlights

• We maintain HOLD recommendation on UEM Sunrise  (UEMS) with an unchanged fair value (FV) of RM0.25/share,  based on a discount of 70% to our RNAV and a neutral ESG  rating of 3 stars (Exhibits 3 & 4). The FV implies a FY24F PE  of 13x, at parity to the average of larger cap property stocks  currently.

• According to The Edge Malaysia, UEMS intends to purchase  Giant Mall in Kelana Jaya, Petaling Jaya (PJ), Selangor from  Employees Provident Fund (EPF) with a consideration of at  least RM150mil or RM383 psf.

• The report indicated that UEMS plans to demolish the  building in Giant Mall and redevelop the 9-acre land. The  potential acquisition would bring UEM’s total landbank up  to 8,541 acres (+0.11%) (Exhibit 1).

• Assuming its land cost-to-estimated gross development  value (GDV) at 15% to 20%, we expect that the land will carry  an estimated GDV of between RM750mil to RM1bil, which  will increase UEM’s remaining GDV by 1%.

• The land is well connected to major highways such as  Damansara-Puchong Expressway, which provides direct  access via Federal Expressway to Kuala Lumpur city centre. 

• It is also surrounded by amenities, including healthcare  centres (2km to KMI Kelana Jaya Medical Centre), education  institutions (900m to UNITAR International University) and  shopping mall (1.3km to Paradigm Mall) (Exhibit 2).

• Given its prime location with great amenities, we are  positive on the potential acquisition if the offer price is fair  and reasonable. 

• The potential acquisition would also be UEMS’ second  sizeable land acquisition in the affluent Petaling Jaya  township following its previous purchase of 9.93 acres of  leasehold factory land and buildings in Section 13, PJ in  2021. This will further strengthen UEMS’ portfolio in prime  and upmarket locations following its successes in Mont  Kiara. 

• Both parties are at the tail end of negotiations. The deal is  anticipated to be announced as early as this week.

• We maintain our earnings forecast and valuation pending  further details on the potential acquisition.

• As UEMS is currently trading at an unexciting FY24F PE of  12x, near its pre-pandemic valuations, we see limited upside  potential at this juncture.   

Source: AmInvest Research - 29 May 2023