UEM Sunrise Bhd
(June 17, 85 sen)
Maintain market perform with a lower target price of 83.5 sen: Last Friday, UEM Sunrise Bhd announced its 51% joint-venture Desaru North Course Residences Sdn Bhd — the remaining 49% stake is held by Desaru North Course Bhd, an indirect subsidiary of Themed Attractions Resorts & Hotels Sdn Bhd [TAR&H]) — will be revising their residential development in Desaru, downsizing it from 680 acres (275.19ha) to 228 acres. UEM Sunrise will also be acquiring Somerset and Marina Walk Puteri Harbour for a total consideration of RM145 million.

We opined that the management reducing the development exposure in Desaru as positive. UEM Sunrise is set to receive RM107 million from the proposed settlement with TAR&H, to offset part of the purchase consideration of RM145 million for Somerset and Marina Walk Puteri Harbour. The remaining RM38 million will be settled by UEM Sunrise over five years, which would have a minimal strain on UEM Sunrise’s net gearing of 0.49 times in the first quarter of financial year 2019 (1QFY19).

Based on the original development plan, UEM Sunrise would need to fork out an additional RM148.5 million to settle the remaining original purchase consideration, which now can be deployed to its existing projects and landbanking in matured areas.

The management is still targeting sales of RM1.2 billion, backed by RM1.25 billion worth of new launches including the new Kepong Metropolitan project, ongoing projects worth RM1.5 billion and inventories with a market value of RM1.03 billion; however, take note that the bulk of new launches are in 4Q of calendar year 2019. The group will continue its active inventory clearing, targeting to halve it by year end.

Divestments of non-core assets are still in the pipeline with RM41 million worth of land deals signed and another potential RM305 million worth of assets for sale this year. Its net gearing is expected to drop to 0.40 times by end-FY19, thanks to the divestments and the remaining settlements of Aurora and Conservatory.

On landbanking, the group is looking at niche parcels with a quick turnaround time span in matured areas; take note the group has acquired a small parcel in Mont’ Kiara. — Kenanga Research, June 17