UEM Sunrise may lack near term catalysts
Date：2015/04/06
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UEM Sunrise may lack near-term catalysts given the lacklustre situation in Iskandar Malaysia where it has the most exposure to, says UOB Kay Hian Malaysia Research.
It said recently, this was despite that the property developer’s fundamentals remain intact.
“Our target price of RM1.56 (from RM1.70) also implies 14.8 times 2016F price-to-earnings (PE) which is one standard deviation below its three-year average PE. A good entry price would be RM1.30,” said the research house.
According to UOB Kay Hian Research, it was surprised by the announcement that UEM Sunrise has signed a share subscription agreement with its major shareholder, UEM Group Bhd.
Under the corporate exercise, UEM Sunrise would allot 524.4 million new UEM Sunrise shares, or 11.6% of the current paid-up capital at RM1.47 per subscription share cash. The share subscription is expected to raise about RM770.9mil for UEM Sunrise.
“While the share issuance to UEM Group would be EPS dilutive for UEM Sunrise shareholders in the medium term, however in the longer term it would enable UEM Sunrise to continue to hold its 100% stake in the Nusajaya development,” it said.
The amount raised from the proposed share issuance would be used to redeem part of the 450 million redeemable convertible preference shares (RCPS) issued by Bandar Nusajaya Development Sdn Bhd (BND) to UEM Group on Nov 28, 2005.
BND is a unit of UEM Land Bhd, which in turn is a wholly-owned subsidiary of UEM Sunrise. The RCPS was issued to Khazanah Nasional and was treated as part settlement of the outstanding loan of RM800mil previously granted by Khazanah Nasional Berhad to UEM Group.
The share issuance will provide UEM Sunrise with the necessary funds to effect the redemption of BND-RCPS. In the event that the BND-RCPS are not redeemed, the BND-RCPS will be automatically converted into BND shares upon its maturity on Nov 27, 2015, resulting in UEM Group having a direct stake in BND of 21.8%.
UOB Kay Hian Research said given that BND is expected to significantly contribute to the future earnings of UEM Sunrise group, this is the best route for UEM Sunrise to raise funds for the redemption of the BND-RCPS.
“Maintain Hold with a lower target price of RM1.56 (from RM1.70) after taking into account the new shares that are to be issued to UEM Group. Our RNAV-based target price is based on a discount rate of 45%. While the company’s fundamentals remain intact, the company may lack near-term catalysts given the lacklustre situation in Iskandar Malaysia, where UEM Sunrise has the most exposure to,” it said.