AmWatch - UEM Sunrise: Third bite of the Aussie pie HOLD, 4 Aug 2015

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UEM Sunrise: Third bite of the Aussie pie             HOLD

We maintain HOLD on UEM Sunrise (UEMS) with an unchanged fair value of RM1.29/share (45% discount to NAV). UEMS recently completed its acquisition of a third property in Melbourne, Australia.

UEMS will pay A$58mil (RM161mil) for the 16k sq m property (c.A$337psf or RM935psf). It currently houses a 21-storey office building on 412 St. Kilda Road – one of the main routes into Melbourne’s CBD. The Victorian Police are its current occupants, but are expected to vacate it by mid-2016. UEMS subsequently intends to convert the building into an ‘ultra-luxurious’ residential development, which may also include retail ground floors and serviced apartments. We leave our earnings unchanged for now pending further updates on the proposed project. Funding is not a problem, as FY15F net gearing ratio is manageable at 23%.   

Earlier, UEMS had acquired two other CBD plots in Melbourne on La Troube Street and Mackenzie Street back in October 2013. The Aurora Melbourne project on La Troube Street – UEMS’ first foray in Australia – was an instant success with a 95% take-up rate achieved within two weeks of its preview last October. Meanwhile, the launch of the Mackenzie Street project (GDV: ~RM608mil) was supposed to be ready by year-end. Both of UEMS’ existing Australian projects account for RM2.8bil or <1% of the group’s remaining GDV pipeline of c.RM82bil. 

Over in Nusajaya, the group appears to be reshuffling its portfolio, the most recent being the tie-up with Japan’s Mitsui to offer built-to-suit developments for lease at Nusajaya Tech Park. Our HOLD call on UEMS remains, as pre-sales momentum for its local projects will likely remain muted in the near-term, particularly in Johor (FY15F base new sales target of RM2bil vs. RM2.4bil achieved in FY14). A slight positive is the strong response to the recent launches at its Serene Heights Bangi development. All of the 121 units of the Acacia 2S-terrace homes (priced from RM550k onwards) were snapped up during a two-day launch.

               

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