UEM Sunrise’s plan to expand in country’s central region seen positive

UEM Sunrise Bhd (Aug 27, 92 sen)

Maintain buy with an unchanged target price of RM1.25: UEM Sunrise Bhd announced that joint land development agreement (JLDA) between UEM Sunrise, Telekom Malaysia Bhd (TM) and Sunrise Quality Sdn Bhd (an indirect wholly-owned subsidiary of UEM Sunrise) for the development of TM’s 1.69-acre (0.68ha) land in Jalan Raja Chulan has been rescinded subsequent to the non-fulfilment of the conditions precedent. Both parties have also agreed to refund the deposit to Sunrise Quality Sdn Bhd.

To recap, UEM Sunrise, TM and Sunrise Quality Sdn Bhd entered into the JLDA on May 27, 2016 for the development of the land. The plan is to build a high-rise mixed development comprising serviced apartments and retail elements.

Under the agreement, Sunrise Quality Sdn Bhd would pay TM a guaranteed land cost of RM150 million as well as a 5% share of the gross development value of the project.

We are neutral on the announcement as the announcement is not expected to impact earnings of UEM Sunrise.

We have not factored in the earnings contribution from the proposed project on the land as we had previously gathered that UEM Sunrise still needs between one and two years to get the necessary approvals before the project to go ahead.

Hence, we make no changes to our earnings forecast for financial year ending Dec 31, 2018 (FY18)/FY19.

Our target price is based on 45% discount to revalued net asset value.

We maintain our “buy” recommendation on UEM Sunrise as valuation of UEM Sunrise is attractive, trading at 33% discount to net tangible asset. We also like UEM Sunrise strategy of increasing presence in the central region of Malaysia. — MIDF Research, Aug 27

This article first appeared in The Edge Financial Daily, on Aug 28, 2018.

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