Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Vol m Briefing Note, UEM Sunrise (UEMS MK) Neutral (Maintained) Property - Real Estate Target Price: MYR2.73 Market Cap: USD2,866m Price: MYR2.10 Mega Projects But Neutral To Short-term Earnings Macro Risks Growth Value UEM Sunrise (UEMS MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 3.8 181 3.6 171 3.4 161 3.2 151 3.0 141 2.8 131 2.6 121 2.4 111 2.2 101 2.0 91 1.8 81 70 60 50 40 30 20 10 Source: Bloomberg Avg Turnover (MYR/USD) 10.6m/3.24m Cons. Upside (%) 29.5 Upside (%) 30.0 52-wk Price low/high (MYR) 2.02-3.65 Free float (%) 30 Shareholders (%) Khazanah Nasional Bhd 64.9 EPF 5.0 Shariah compliant While we believe the land swap deal is positive for both UEMS and KLK over the longer-term, it is neutral to the former s FY13-15 earnings. Although valuations have largely priced in negatives such as dropping out of the FBM KLCI and foreign shareholding in Dec 2013 dipping to a new low at 14.87% since March 2012, we maintain our NEUTRAL call and MYR2.73 FV while awaiting a stronger catalyst. Land swap deal. UEMS and KLK (KLK MK, NEUTRAL, FV: MYR24.40) will undertake two joint developments a 60/40 UEMS/KLK joint venture (JV) to develop 2,500 acres of land in Kulai and a 40/60 UEM/KLK partnership to develop 500 acres of Gerbang Nusajaya land. The parcels are valued at MYR8 psf and MYR40 psf respectively (the latter includes infrastructure). Note that the 270-acre Motorsport City land in Gerbang Nusajaya transacted at only MYR19 psf in Dec 2012. A long-term win-win for both. The deal signals KLK CEO Tan Sri Lee Oi Hian s greater interest in the Iskandar Malaysia property market. Tan Sri Lee and three other renowned businessmen and tycoons acquired 43.6 acres land in Puteri Harbour at MYR400m in Jan 2013 for property development. With this JV, KLK will now be able to tap into UEMS backing and connections in the Iskandar Malaysia market, while UEMS can take the opportunity to accelerate its development in Gerbang Nusajaya, which covers 4,500 acres. MYR20bn projects in total. In view of the shareholding, KLK will take the lead to develop the Gerbang Nusajaya land into an eco-friendly township with a MYR5bn GDV. Given UEMS experience in the SiLC and Ascendas developments, it will develop the Kulai land into an industrial township known as Fraser Metropolis, with a mix of industrial (40%), residential (50%) and commercial (10%) worth MYR15bn GDV. The concept makes sense, as SiLC and Ascendas cater mainly to the higherend industrial segment while Fraser Metropolis will target the lower-end niche, given its longer distance to the Second Link and lower land cost. Forecasts. As both projects will only be launched in 2016/2017, we maintain our FY13-14 earnings forecasts. Upon the completion of the deal in 3Q15, UEMS is expected to realise MYR228m (60% of MYR380m) in effective land disposal gain. Loong Kok Wen CFA +603 9207 7614 loong.kok.wen@rhbgroup.com Valuations. No change to our RNAV estimates, as both are very longterm projects. Maintain NEUTRAL and MYR2.73 FV on UEMS. Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total turnover (MYRm) 470 1,703 1,940 2,491 2,756 Reported net profit (MYRm) 195 302 448 586 630 Recurring net profit (MYRm) 169 302 448 586 630 Recurring net profit growth (%) 47.4 78.6 48.6 30.7 7.5 Recurring EPS (MYR) 0.09 0.09 0.11 0.14 0.14 DPS (MYR) 0.01 0.00 0.03 0.04 0.04 Recurring P/E (x) 23.0 22.3 19.1 15.3 15.0 P/B (x) 1.83 1.76 1.61 1.52 1.41 Dividend Yield (%) 0.4 0.0 1.4 1.7 1.9 Return on average equity (%) 9.2 8.0 8.8 10.2 9.8 Return on average assets (%) 5.2 5.1 5.3 6.1 6.0 Net debt to equity (%) (0.9) 12.4 15.8 18.4 24.7 Our vs consensus EPS (%) 0.0 0.0 See important disclosures at the end of this report Powered by Enhanced Datasystems EFA TM Platform 1
UEM Sunrise (UEMS MK) Figure 1: Location of the proposed site in Gerbang Nusajaya Source: Company, RHBRI Figure 2: Location of Fraser Metropolis Source: Company, RHBRI See important disclosures at the end of this report 2
UEM Sunrise (UEMS MK) Figure 3: UEMS RNAV RNAV for ULHB Projects Location Remaining land Remaining GDV Stake NPV @ 13% (acres) (MYR mil) Ongoing projects East Ledang Nusajaya 148.2 1,166.5 100% 326.2 Nusa Idaman Nusajaya 35.0 339.2 100% 95.7 Nusa Bayu Nusajaya 117.9 418.8 100% 118.2 Imperia Nusajaya 448.6 100% 126.6 Teega Nusajaya - 100% - Symphony Hills Non-Nusajaya 24.1 532.6 100% 53.1 MK 28 Non-Nusajaya - 100% - Arcoris Non-Nusajaya 204.0 100% 24.0 Summer Suites & VOS Non-Nusajaya - 100% - Quintet Non-Nusajaya - 100% - Mall of Medini Nusajaya 30.0 1,475.0 55% 158.9 Horizon Hills Nusajaya 865.6 4,467.0 50% 624.6 Somerset @ Puteri Harbour Nusajaya - 50% - Seremban Forest Heights Non-Nusajaya 258.8 841.2 50% 37.3 Pipeline projects Gerbang Nusajaya Nusajaya 3,737.0 31,303.3 100% 3,032.9 D'Estuary Nusajaya 394.0 5,986.6 100% 1,018.5 R10/R11 Nusajaya 136.8 216.5 100% 64.1 Parcel 16 Nusajaya 23.1 148.0 100% 46.4 CS1 Nusajaya 12.2 1,424.0 100% 398.3 Sinaran Hills, Kajang Non-Nusajaya 65.0 614.0 100% 55.8 MK22 Non-Nusajaya 6.0 865.6 100% 78.7 Angkasa Raya Non-Nusajaya 1.6 1,413.0 100% 138.3 Bangi Land Non-Nusajaya 448.6 2,414.5 100% 153.1 Residential South Nusajaya 207.7 3,155.9 80% 600.6 Floresta - Solaris 3 Non-Nusajaya 18.7 1,521.0 62% 85.7 Desaru Non-Nusajaya 678.7 10,460.0 51% 429.9 CS3 - Puteri Harbour Nusajaya 6.7 883.0 50% 130.6 Jelutong Commercial Centre Non-Nusajaya 21.0 1,256.0 50% 60.4 Residential North Nusajaya 111.0 2,400.0 40% 228.4 Gerbang Nusajaya - Eco Industrial Park Nusajaya 519.0 3,500.0 40% 238.2 Gerbang Nusajaya - Motorsports City Nusajaya 295.0 3,700.0 30% 232.8 Catelyst development Location Remaining land (acres) Est. GDV (MYR mil) Stake NPV @ 13% Puteri Harbour Nusajaya 68.4 774.7 100% 289.8 SiLC Nusajaya 206.8 495.5 100% 185.4 Afiat Healthpark Nusajaya 43.3 188.6 100% 70.6 Undeveloped landbank Nusajaya Land efficiency Remaining land (acres) Market value (MYR psf) Stake Net surplus Regional Open Space 0.65 600.0 22 100% 280.3 Others 0.65 551.6 15 100% 175.7 Outside Nusajaya Klang Valley 0.65 44.4 60 100% 56.6 Mersing 0.65 431.0 6 100% 54.9 Tapah 0.65 2,405.0 4 100% 204.3 Canada 0.65 4.0-100% - Total NPV and net surplus 9,874.8 Unbilled sales 882.2 NTA 4,694.6 Net gain on PH land disposal to Liberty Bridge 241.1 Net gain on PH land disposal to Kuok Brothers 81.0 Total RNAV 15,773.6 Share base 4,331.7 RNAV/share 3.64 Premium/Discount 25% Fair value (MYR) 2.73 Source: Company, RHB estimates See important disclosures at the end of this report 3
UEM Sunrise (UEMS MK) Financial Exhibits Profit & Loss (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total turnover 470 1,703 1,940 2,491 2,756 Cost of sales (259) (1,185) (1,232) (1,571) (1,783) Gross profit 210 519 708 920 973 Gen & admin expenses (175) (221) (270) (317) (338) Other operating costs 144 67 50 56 65 Operating profit 179 364 487 659 700 Operating EBITDA 95 367 491 663 700 Depreciation of fixed assets 84 (3) (4) (4) - Operating EBIT 179 364 487 659 700 Net income from investments 34 43 89 74 92 Interest expense (8) (51) (41) (70) (81) Pre-tax profit 206 355 535 662 711 Taxation (10) (52) (87) (71) (77) Minority interests (1) (1) 0 (5) (5) Profit after tax & minorities 195 302 448 586 630 Reported net profit 195 302 448 586 630 Recurring net profit 169 302 448 586 630 Cash flow (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Operating profit 179 364 487 659 700 Depreciation & amortisation (84) 3 4 4 - Change in working capital (538) (453) (446) (720) (377) Other operating cash flow 344 371 (552) 6 81 Operating cash flow (98) 285 (507) (51) 403 Interest paid (8) (51) (41) (70) (81) Tax paid (10) (52) (87) (71) (77) Cash flow from operations (116) 182 (635) (193) 246 Capex (8) (1,562) (380) (409) (572) Other investing cash flow 4 1,138 111 - - Cash flow from investing activities (4) (424) (269) (409) (572) Dividends paid - (13) - (92) (120) Proceeds from issue of shares 980 1,847 123 - - Increase in debt (292) 767 540 - - Other financing cash flow (274) (2,164) 669 237 178 Cash flow from financing activities 415 437 1,332 145 58 Cash at beginning of period 143 438 632 1,060 604 Total cash generated 295 194 428 (457) (268) Implied cash at end of period 438 632 1,060 604 335 See important disclosures at the end of this report 4
UEM Sunrise (UEMS MK) Financial Exhibits Balance Sheet (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total cash and equivalents 438 904 1,205 748 480 Inventories 811 1,191 1,077 1,605 1,860 Accounts receivable 457 1,016 1,792 2,215 2,418 Other current assets 76 4 11 11 11 Total current assets 1,783 3,115 4,084 4,579 4,768 Total investments 69 604 548 548 548 Tangible fixed assets 1,890 3,425 3,801 4,205 4,777 Intangible assets 39 621 621 621 621 Total other assets 190 28 33 107 199 Total non-current assets 2,189 4,679 5,003 5,480 6,145 Total assets 3,971 7,794 9,086 10,059 10,913 Short-term debt - 52 125 125 125 Accounts payable 156 516 713 880 960 Other current liabilities 104 157 182 247 247 Total current liabilities 260 725 1,020 1,252 1,332 Total long-term debt 408 1,123 1,590 1,858 2,132 Other liabilities 161 649 659 250 250 Total non-current liabilities 569 1,772 2,249 2,108 2,382 Total liabilities 829 2,497 3,269 3,360 3,713 Share capital 2,336 4,182 4,192 4,602 4,602 Retained earnings reserve 288 590 1,038 1,506 2,001 Other reserves 64 64 86 86 86 Shareholders' equity 2,687 4,836 5,316 6,194 6,689 Minority interests 454 460 501 506 511 Other equity - 0 - - - Total equity 3,142 5,297 5,817 6,699 7,200 Total liabilities & equity 3,971 7,794 9,086 10,059 10,913 Key Ratios (MYR) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Revenue growth (%) 16.5 262.6 13.9 28.4 10.6 Operating profit growth (%) 94.3 102.9 33.8 35.2 6.3 Net profit growth (%) 69.1 55.1 48.6 30.7 7.5 EPS growth (%) 17.9 (10.2) 16.9 24.2 2.6 Bv per share growth (%) 3.2 3.5 9.6 5.9 8.0 Operating margin (%) 38.2 21.4 25.1 26.4 25.4 Net profit margin (%) 41.4 17.7 23.1 23.5 22.8 Return on average assets (%) 5.2 5.1 5.3 6.1 6.0 Return on average equity (%) 9.2 8.0 8.8 10.2 9.8 Net debt to equity (%) (0.9) 12.4 15.8 18.4 24.7 DPS 0.01 0.00 0.03 0.04 0.04 Recurrent cash flow per share (0.06) 0.06 (0.16) (0.05) 0.05 See important disclosures at the end of this report 5
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 UEM Sunrise (UEMS MK) SWOT Analysis Anchor landbank in Iskandar Malaysia Low land cost Large cap. The competition from other sizeable players in Iskandar Malaysia Further relocation of Singapore corporates to boost business activities and population Geographically concentrated P/E (x) vs EPS growth P/BV (x) vs ROAE 25 20 15 10 5 0 50% 36% 22% 8% -6% -20% 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 12.0% 10.8% 9.6% 8.4% 7.2% 6.0% 4.8% 3.6% 2.4% 1.2% 0.0% P/E (x) (lhs) EPS grow th (rhs) P/B (x) (lhs) Return on average equity (rhs) Company Profile UEM Sunrise (previously known as UEM Land) is a company under Khazanah Nasional. It is the developer undertaking developments in Nusajaya Iskandar. See important disclosures at the end of this report 6
1.80 1.65 2.18 2.53 4.25 NR 2.80 3.35 3.35 1.40 2.38 2.65 2.39 2.18 2.43 2.05 2.48 2.26 3.30 2.73 UEM Sunrise (UEMS MK) Recommendation Chart Price Close 3.7 Recommendations & Target Price 3.2 2.7 2.2 1.7 1.2 0.7 0.2 Feb-09 May-10 Aug-11 Nov-12 Buy Neutral Sell Trading Buy Take Profit Not Rated Source: RHB estimates, Bloomberg Date Recommendation Target Price Price 2013-11-26 Neutral 2.73 2.30 2013-08-30 Neutral 2.73 2.52 2013-05-29 Trading Buy 4.25 3.59 2013-05-20 Trading Buy 3.30 3.51 2013-02-22 trading buy 2.53 2.28 2013-01-18 trading buy 2.53 2.29 2013-01-09 NEUTRAL 2.26 2.12 2013-01-07 trading buy 2.48 2.19 2012-12-05 trading buy 2.48 2.13 2012-11-29 trading buy 2.48 2.09 Source: RHB estimates, Bloomberg See important disclosures at the end of this report 7
RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or financial advice to independently evaluate the particular investments and strategies. RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to, or dispose off, or may be materially interested in any such securities. Further, RHB, its affiliates and related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity mentioned in this research report. RHB and its employees and/or agents do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or damages that may arise from any reliance based on this report or further communication given in relation to this report, including where such losses, loss of profits or damages are alleged to have arisen due to the contents of such report or communication being perceived as defamatory in nature. The term RHB shall denote where applicable, the relevant entity distributing the report in the particular jurisdiction mentioned specifically herein below and shall refer to RHB Research Institute Sdn Bhd, its holding company, affiliates, subsidiaries and related companies. All Rights Reserved. This report is for the use of intended recipients only and may not be reproduced, distributed or published for any purpose without prior consent of RHB and RHB accepts no liability whatsoever for the actions of third parties in this respect. Malaysia This report is published and distributed in Malaysia by RHB Research Institute Sdn Bhd (233327-M), Level 11, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur, a wholly-owned subsidiary of RHB Investment Bank Berhad (RHBIB), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Singapore This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No. 200808705N), a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group) and OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB, which in turn is a whollyowned subsidiary of RHB Capital Berhad). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. As of 6 February 2014, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the securities covered in this report, except for: a) - As of 6 February 2014, none of the analysts who covered the securities in this report has an interest in such securities, except for: a) - Special Distribution by RHB Where the research report is produced by an RHB entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, it is only distributed to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd. Hong Kong This report is published and distributed in Hong Kong by RHB OSK Securities Hong Kong Limited ( RHBSHK ) (formerly known as OSK Securities Hong Kong Limited), a subsidiary of OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB ), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company. RHBSHK, RHBIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company. 8
Risk Disclosure Statements The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. RHBSHK does not maintain a predetermined schedule for publication of research and will not necessarily update this report Indonesia This report is published and distributed in Indonesia by PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Thailand This report is published and distributed in Thailand by RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Other Jurisdictions In any other jurisdictions, this report is intended to be distributed to qualified, accredited and professional investors, in compliance with the law and regulations of the jurisdictions. DMG & Partners Research Guide to Investment Ratings Kuala Lumpur Hong Kong Singapore Malaysia Research Office RHB Research Institute Sdn Bhd Level 11, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia Tel : +(60) 3 9280 2185 Fax : +(60) 3 9284 8693 RHB OSK Securities Hong Kong Ltd. (formerly known as OSK Securities Hong Kong Ltd.) 12th Floor World-Wide House 19 Des Voeux Road Central, Hong Kong Tel : +(852) 2525 1118 Fax : +(852) 2810 0908 DMG & Partners Securities Pte. Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore 049315 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211 Jakarta Shanghai Phnom Penh PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia) Plaza CIMB Niaga 14th Floor Jl. Jend. Sudirman Kav.25 Jakarta Selatan 12920, Indonesia Tel : +(6221) 2598 6888 Fax : +(6221) 2598 6777 RHB OSK (China) Investment Advisory Co. Ltd. (formerly known as OSK (China) Investment Advisory Co. Ltd.) Suite 4005, CITIC Square 1168 Nanjing West Road Shanghai 20041 China Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633 Bangkok RHB OSK Indochina Securities Limited (formerly known as OSK Indochina Securities Limited) No. 1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok Phnom Penh Cambodia Tel: +(855) 23 969 161 Fax: +(855) 23 969 171 RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL) 10th Floor, Sathorn Square Office Tower 98, North Sathorn Road, Silom Bangrak, Bangkok 10500 Thailand Tel: +(66) 862 9999 Fax : +(66) 108 0999 9