This article first appeared in The Edge Financial Daily on November 14, 2019

UEM Sunrise Bhd
(Nov 13, 78 sen)
Downgrade to hold with an unchanged fair value (FV) of 80 sen: UEM Sunrise Bhd is disposing of a property in Melbourne for A$107.09 million (RM304.13 million). According to the management, the proposed divestment allows UEM Sunrise to immediately unlock the value of the property at a gain in line with market value, and free up cash to enable the group to pursue other investments and venture opportunities.

The property was acquired in May 2016 for A$58 million. The disposal, it added, is expected to be completed by the end of the year, and give rise to an estimated net gain on disposal of RM54.32 million (A$19.12 million).

The property is located at the strategic corner of St Kilda Road and Bowens Crescent, one of the main arteries into the Melbourne central business district and flanked by a mix of office, residential and mixed-use towers.

We believe this is part of the land/property sale of the group to unlock cash as the management had highlighted to us in an earlier meeting. We believe this is positive for the company as the cash can be used to reduce the company’s gearing. We make no changes to our financial year 2019 (FY19) numbers as the company is making an exceptional gain which has no effect on the core net profit.

We believe the outlook for UEM Sunrise remains stable premised on its local unbilled sales of RM947 million while its FY19-20 earnings will be mainly supported by the Australian projects which are due for completion in the second half of 2019 (2H19). The handing over of the Australian projects will also reduce the company’s net gearing from 54% to 40% by the end of FY19 and below 40% in the following year.

We downgrade UEM Sunrise to “hold” from “buy” following the recent run-up in its share price, which now offers a limited upside. — AmInvestment Bank, Nov 13