Khazanah may privatise UEM Sunrise, says MIDF

KUALA LUMPUR: MIDF Research in its corporate update of UEM Sunrise said that there may be plans for Khazanah Nasional Bhd to privatise the property development company.
MIDF has maintained a "buy" call on the company, with a RM1.20 target price.
"We maintain our buy recommendation on UEM Sunrise as we believe that Khazanah (which holds a 66.1% stake) may be inclined to privatise UEM Sunrise due to its deep valuation currently. In our view, the market may have overreacted negatively on the stock," it said in its research note yesterday.
"Note that UEM Sunrise share price has tumbled 69% from its peak of RM3.10 on July 18, 2013 while we expect the core EPS to only decline by 28% to 9.7 sen in FY15 (against 13.39 sen in FY13). It is also at 30% discount to its book value of RM1.40. We also like the management initiative to diversify its landbank from Johor via the Melbourne acquisitions," it said.
UEM Sunrise, previously known as UEM Land Holdings Bhd, was listed in 2008. UEM Group Bhd became its major shareholder in the same year. It acquired Sunrise Bhd in 2011 and subsequently changed its name to UEM Sunrise in 2013.
On Tuesday, UEM Sunrise announced the acquisition of an office building in Melbourne, Australia for A$58 million (RM161 million), which it plans to convert into a luxury residential development.
The latest acquisition of the building on St Kilda Road is the company's third property acquisition in Melbourne after the purchases of two Central Business District sites on LaTrobe Street and Mackenzie Street in October 2013.
MIDF said the valuation of A$337 per square foot (psf) for the building is fair, compared with the average valuation of A$350 psf for Melbourne commercial buildings transacted in the past 12 months.
Meanwhile, UEM Sunrise chief marketing officer Zadil Hanief Mohamad Zaidi said it has not seen any negative impact from the weakening ringgit on its international projects so far.
"It's not our first foray there, we've been there. So, it is not like our first entry into the Australian or any foreign market for that matter. It is a continuation of what we have done in the past. Whatever the changes in the forex environment, I doubt has an effect but it does make a difference if it was the first (project)," he told reporters at the launch of its latest mostly residential project Residensi Sefina Mont'Kiara yesterday.
UEM Sunrise has projects in Singapore, Canada and Australia, as well as land in South Africa. It was previously reported that the company plans to expand further in Australia and is keen to enter the UK market.
Zadil said the company has also taken steps to mitigate the impact of the weakening ringgit on the construction of its local projects and has been able to maintain healthy take-up rates to date.
"If you look at the segment one by one, we are tracking well. We believe we are tracking well because the launches are carefully selected, we try to match products to customer needs and we sequence the timing accordingly. We believe that is why our take-up rate has been healthy.
"On whether the weaker ringgit has affected the construction sector, at this stage we are not seeing it. Currently we have not been affected so much," he said.
However, Zadil said it has seen a slowdown in the conversion of bookings to sales and purchase (S&P) agreements due to stricter lending guidelines.
"We do see a challenge in conversion. You can get the monetary commitment to book and show interest in the product but to convert is to secure the loan and sign the S&P agreement. What we have seen is the rate of conversion has been slower and longer compared with the past.
"Having said that, our experience in the launches that we had this year has shown that the interest for property remains high, people are still interested to buy and we believe it's purely dependent on the type of offering that we are launching," he added.
Zadil said the take-up rate for the RM307 million gross development value Residensi Sefina Mont'Kiara, has been 60%, exceeding its initial target of 40% this year.