KEY INVESTMENT HIGHLIGHTS

• Disposing land in SiLC Johor for RM434m

• Neutral on the land disposal

• Sale of land within new sales assumption

• Earnings estimates maintained

• Maintain BUY with an unchanged TP of RM0.52

Disposing land in SiLC Johor for RM434m. UEM Sunrise (UEMS) announced that it has entered into two separate heads of agreements (HOAs) for the land disposal in SiLC Johor. The first HOA was entered into with Pentagon Land Sdn Bhd (Pentagon) and Greenhill SILC Sdn Bhd (Greenhill) while the second HOA was entered into with Pentagon. Both Pentagon and Greenhill are subsidiaries of AME Elite Consortium Berhd (AME). The signed HOAs are in relation to the disposal of 72 freehold industrial plots measuring approximately 169.8 acres in phase 3, SiLC in Iskandar Puteri Johor for a total purchase consideration of RM434.3m.

Neutral on the land disposal. We are not surprised by the land disposal as UEMS has been actively monetizing its landbank in Johor. Note that UEMS disposed 164 acres of freehold land in Mukim Pulai Johor to Country View Berhad for RM310m in 2017. The latest land disposal implies disposal price of RM2.6m/acre which is higher than disposal price of RM1.9m/acre to Country View Berhad due to more strategic location of the land in SiLC Iskandar Puteri.

Sale of land within new sales assumption. The land sales of RM434m is expected to boost new sales of UEMS in FY20. Nevertheless, this is within management and our expectations as management has targeted new sales of RM1b (which include land sales) for FY20. Note that UEMS recorded low new sales of RM150.9m in 1HFY20 due to disruption to business activities from MCO while sales in 2HFY20 are expected to be supported by Penjana incentives.

Maintain BUY with an unchanged TP of RM0.52. We make no changes to our earnings forecasts as land sales are within management and our new sales target. We maintain our TP for UEMS at RM0.52, based on 75% discount to RNAV. We maintain BUY on UEM Sunrise as we expect earnings to return to the black in 2HFY20. Besides, valuation is attractive as it is trading at 73% discount to latest NTA of RM1.42 per share.

Source: MIDF Research - 12 Oct 2020