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10 February 2014

HLIB Research PP 9484/12/2012 (031413)

UEM Sunrise (HOLD , EPS ) INDUSTRY: NEUTRAL NEWSBREAK / BRIEFING

February 10, 2014 Price Target: RM2.23 ()

Share price: RM2.10

Massive JV with KLK News UEMS and KLK are jointly developing two parcels of

land in IDR, namely Fraser Estate and Gerbang. We outline the salient details on page 2 of our report.

The Fraser land parcel (initial 2500 acres) will be developed by Aura Muhibah Sdn Bhd (AMSB) into an integrated development including residential, industrial and commercial elements, to be known as Fraser Metropolis @ Iskandar North (FM). GDV is RM15bn over a period of 15 years.

The Gerbang land parcel (500 acres) will be developed by Scope Energy Sdn Bhd (SESB), and will also be a mixed development. GDV is RM8bn over a period of 8 years.

FM Phase 2 (on top of the initial 2,500 acres): KLK has granted AMSB a 5-year option to acquire 500 acres of contiguous land, which shares a common boundary with the Fraser Land and is part of the Additional Land.

FM Phase 3: In addition, AMSB will enjoy a 10-year ROFR from KLK, should KLK decide to dispose part of an additional 2,000 acres of land (“Additional Land”) which currently shares a master title with the Fraser Land.

Financial impact

For UEMS’s disposal of its 500 acres of Gerbang land to SESB, it is expected to enjoy RM171m net disposal gain, likely to be recognised in late FY14 or in FY15.

Given development is expected to commence by 2017, earnings impact will be minimal.

Pros / cons Land replenishment exercise. This deal provides UEMS with a 60% stake in the 2,500 acre Fraser Land. Given that Gerbang accounts for 4,500 acres out of UEMS’ balance 5,500-acre landbank, we are pleased to note that this deal offers UEMS access up to potentially 5,000 acres.

Favourable terms. The Fraser Land was injected at RM8psf, which compares favourably with RM22psf Dijaya paid for its Plentong land back in 2011. The Gerbang land was injected into SESB at RM40 psf, which compares well with the recent transaction price range of RM70-80psf in SiLC Nusajaya.

Risks Nusajaya fails to achieve critical mass; failure to achieve RM3.0bn sales target; high-beta stock.

Forecasts We raise FY15 forecast by 25% to factor in RM171m post-tax gains from disposal of land to SESB.

Rating HOLD () Positives: highly liquid proxy to property sector; large

war-chest for landbank acquisitions; rich in newsflow. Negatives: Share price is highly news-driven;

vulnerable to external slowdown; highest P/E multiple in the sector (>2x sector average).

Valuation Given the sector headwinds UEMS faces currently and recent weakness in share price, we maintain our HOLD call and reduce TP from RM2.43 to RM2.23 (45% discount to RNAV).

Sean Lim slim@hlib.hongleong.com.my +603-2168 1161 KLCI 1808.6 Expected share price return 8.0% Expected dividend return 1.3% Expected total return 9.3%

Share price

Information Bloomberg Ticker UEMS MK Bursa Code 5148 Shares outstanding (m) 4,537 Market cap (RMm) 9,529 3-mth avg volume (‘000) 5,173

Price Performance 1M 3M 12M Absolute % -8.7 -11.0 3.4 Relative % -7.9 -11.1 -7.4 Major shareholders (%) Khazanah 66.1 EPF 4.8 Summary Earnings Table FYE Dec (RM m) 2012A 2013E 2014E 2015E Revenue 1,939.7 3,082.2 2,947.2 3,161.2 Reported net profit 447.4 631.0 522.2 638.4 Norm. net profit 447.4 631.0 522.2 638.4 Norm. EPS (sen) 10.3 14.6 12.1 14.8 EPS growth (%) 48.3 41.1 -17.2 22.2 Norm. PER (x) 20.3 14.4 17.4 14.2 FD PER (x) 20.3 14.4 17.4 14.2 EV/ EBITDA (x) 20.1 12.7 15.7 12.1 Net DPS (sen) 3.0 3.0 3.0 4.0 Dividend yield (%) 1.4 1.4 1.4 1.9 FCF yield (%) 7.0 -8.9 21.0 16.2 BVPS (RM) 1.3 1.4 1.5 1.6 P/B (x) 1.6 1.5 1.4 1.3 HLIB

90

100

110

120

1.001.502.002.503.003.504.00

Jan-00 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13

(%)(RM)

UEMS (LHS) KLCI (RHS)

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10 February 2014

Figure #1 Details of Proposed Developments Location Land Size (acre) Land Price (RMm) Estimated GDV Proposed Product Mix JV Stake

Fraser Estate Iskandar West 2,500 (Phase 1)* RM871.2m

(or RM8 psf)

RM15 bn - Enterprise Park

- Residential (50%)

- Commercial & retail (10%)

KLK: 40%

UEML: 60%

Gerbang Nusajaya Iskandar North 500 RM871.2m

(or RM40 psf)

RM5bn - Residential (75%)

- Commercial & retail (25%)

KLK: 60%

UEML: 40%

*Option to acquire another 500 acres (Phase 2) and 1st right of refusal for another 2,000 acres (on top of the initial 2,500 acres) Source: Company, HLIB

Figure #2 Location of Proposed Developments

Source: Company, HLIB

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10 February 2014

Figure #3 RNAV table

Source: HLIB * Assuming 65% land utilisation rate for Nusajaya

Remaining landbank Stake Acres Book value (RM m)

Book value RM psf

Market value RM psf

Market value (RM m)

Surplus (RM m)

Nusajaya * 100% 5,474.0 1,420.0 5.96 60.00 14,306.8 8,376.5 Puteri Harbour 100% 68.0 52.0 17.56 300.00 888.6 836.6 SL 1, 2, 3 (Kajang) 100% 65.0 131.3 46.37 60.00 169.9 38.6 Mersing 100% 431.1 20.3 1.08 3.00 56.3 36.0 Bangi 100% 450.0 259.9 13.26 15.00 294.0 34.1 Mont' Kiara 100% 66.1 201.8 70.09 400.00 1,151.7 949.9 Seremban 50% 276.0 162.3 13.50 20.00 240.5 39.1

Investment Property Stake NBV Net income MV @ 10% Net surplusSolaris Dutamas - retail 100% 90.0 11.06 110.55 20.6 Solaris Dutamas - carpark 100% 151.0 4.80 48.00 (103.0) Solaris Mont' Kiara - retail 100% 10.0 1.69 16.91 6.9 Solaris Mont' Kiara - carpark 100% 35.0 1.08 10.80 (24.2) Plaza Mont' Kiara - office 100% 16.0 7.53 75.31 59.3

Project DCF Stake NPV (Rm m)Nusajaya - ResidentialEast Ledang 100% 221.0 Horizon Hills (50% ) w/ Gamuda Land50% 97.9 Nusa Idaman 100% 119.1 Nusa Bayu 100% 52.4 Imperia 100% 47.8 Teega (CS-2) 100% 82.6

Nusajaya - Non-residentialKota Iskandar,Ph. 2&3 60% 28.3 PuteriHarbour (land only ) 100% 244.6 SiLC(land only ) 100% 57.3 Afiat Healthpark (land only ) 100% 9.3 I-6 100% 15.4 Nusajaya industrial park 100% 7.9

Sunrise DivisionMK 28 100% 55.4 MK 11 100% 72.6 Arcoris (MK 20) 100% 121.1 MK 20 (balance landbank) 100% 92.0 Quintet, Vancouver, Canada 100% 11.6 Summer Suites 100% 72.3 MK 22 100% 86.2 Floresta - Solaris 3 100% 227.2 Solaris 3 (balance landbank) 100% 173.0 Wisma Angkasa Raya 100% 109.3 Bukit Jelutong 50% 34.7

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10 February 2014

Figure #4 RNAV table (continued)

Source: HLIB

Figure #5 HLIB vs. Consensus

Source: Bloomberg, HLIB

CyberjayaSymphony Hills 100% 125.4 Bangi Land 100% 51.7

Unbilled sales - worksheet 159.1

Total surplus 12,645.7 Shareholder fund 6,026.1 Total RNAV (RM m) 18,671.9 Shares outstanding (m) 4,326.7 RNAV per share (RM) 4.32

RCPS proceeds 542.6 FD RNAV (RM m) 19,214.5 FD shares outstanding (m) 4,744.1 FD RNAV per share (RM) 4.05 Discount to RNAV 45%Target price 2.23

RMm 2013E 2014EHLIB Consensus % HLIB Consensus %

Net Profit 631.0 556.3 13.4 522.2 557.9 -6.4EPS (sen) 14.6 13.2 10.6 12.1 12.8 -5.6

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10 February 2014

Income statement CashflowFYE Dec (RM m) 2011A 2012A 2013E 2014E 2015E FYE Dec (RM m) 2011A 2012A 2013E 2014E 2015ERevenue 1,703.2 1,939.7 3,082.2 2,947.2 3,161.2 PBT 355.2 535.1 805.9 664.4 839.8Operating Cost -1,334.0 -1,447.4 -2,294.3 -2,300.8 -2,339.3 Depreciation 5.1 5.1 5.1 5.1 5.1EBITDA 369.2 492.2 787.9 646.4 821.9 Amortisation 0.0 0.0 0.0 0.0 0.0Depreciation -5.1 -5.1 -5.1 -5.1 -5.1 Taxation paid 52.3 87.3 201.5 166.1 210.0Amortisation 0.0 0.0 0.0 0.0 0.0 Working cap & others -2,448.9 60.6 -1,650.8 1,198.4 591.3Finance costs -51.4 -41.4 -66.2 -66.2 -66.2 Operating cashflow -2,036.3 688.1 -638.3 2,034.0 1,646.2Associates 26.6 25.8 25.8 25.8 25.8 Capex -15.0 -15.0 -15.0 -15.0 -15.0Joint ctrlled entities 15.9 63.5 63.5 63.5 63.5 Investment & others -20.0 -20.0 -20.0 -20.0 -20.0Pretax profit 355.2 535.1 805.9 664.4 839.8 Investing Cashflow -35.0 -35.0 -35.0 -35.0 -35.0Taxation -52.3 -87.3 -201.5 -166.1 -210.0 Issue of shares 0.0 0.0 0.0 0.0 0.0Minorities -1.2 -0.5 26.6 23.9 8.5 Div idends 0.0 0.0 0.0 0.0 0.0Net profit 301.7 447.4 631.0 522.2 638.4 Minorities & others 0.0 0.0 0.0 0.0 0.0Basic shares (m) 4,323.6 4,323.6 4,323.6 4,323.6 4,323.6 Financing cashflow 0.0 0.0 0.0 0.0 0.0Basic EPS (sen) 7.0 10.3 14.6 12.1 14.8 Net cash flow -4,993.2 92.9 -3,379.7 2,318.7 1,104.4

Balance sheet Valuation ratiosFYE Dec (RM m) 2011A 2012A 2013E 2014E 2015E FYE Dec (RM m) 2011A 2012A 2013E 2014E 2015EPPE 162.3 184.1 61.9 62.8 64.7 Rept. basic EPS (sen) 7.0 10.3 14.6 12.1 14.8Investment properties 511.1 674.3 674.3 674.3 674.3 Norm. basic EPS (sen) 7.0 10.3 14.6 12.1 14.8Prepaid lease payments 0.0 0.0 0.0 0.0 0.0 Norm. FD EPS (sen) 6.3 9.6 13.8 11.3 14.0Non-current assets 4,678.6 5,002.5 4,880.2 4,881.2 4,883.0 PER (x) 30.1 20.3 14.4 17.4 14.2Development costs 1,066.4 954.1 5,047.0 4,826.0 5,176.4 Net DPS (sen) 0.0 3.0 3.0 3.0 4.0Inventories 124.5 122.6 277.3 265.1 284.4 Net DY (% ) 0.0 1.4 1.4 1.4 1.9Trade & other receivables 1,015.8 1,791.6 2,998.3 2,867.0 3,075.2 NTA/ share (sen) 108.1 115.5 126.5 135.0 145.6Short term deposits 21 0.0 0.0 341.2 341.2 341.2 P/NTA (x ) 1.9 1.8 1.7 1.6 1.4Cash and bank balances 21 632.1 1,060.1 96.6 96.6 96.6 FCF/ share (sen) -47.5 14.7 -18.6 44.0 34.0Total assets 7,793.7 9,086.5 13,651.3 13,287.9 13,867.4 FCF yield (% ) -22.6 7.0 -8.9 21.0 16.2Shr Holder funds 4,836.4 5,154.0 5,655.4 6,047.8 6,513.3 Enterprise value 9,510.1 9,510.6 9,484.0 9,460.1 9,451.6Minority interests 460.2 460.7 434.1 410.2 401.7 EV/ EBITDA (x) 32.3 20.1 12.7 15.7 12.1Total Equity 5,296.6 5,614.7 6,089.4 6,458.1 6,915.0 ROE (% ) 6.2 8.7 11.2 8.6 9.8Bonds 0.0 0.0 0.0 0.0 0.0 Net gearing (x ) 0.0 0.0 0.0 0.0 0.0Long-term borrowings 1,123.3 1,123.3 1,123.3 1,123.3 1,123.3 BVPS (RM) 1.2 1.3 1.4 1.5 1.6Short-term borrowings 51.7 51.7 51.7 51.7 51.7 P/B (x) 1.7 1.6 1.5 1.4 1.3

Assumption metrics Quarterly financial summaryFYE Dec (RM m) 2013E 2014E 2015E FYE Dec (RM m) 3Q12 4Q12 1Q13 2Q13 3Q13Segment revenues Revenue 433.4 691.7 711.2 488.9 694.2Property development 2,199.5 2,551.6 2,505.2 Cost of sales -273.4 -417.2 -362.7 -302.6 -431.3Sale of developed land 580.0 341.0 369.1 Gross profit 159.9 274.5 348.5 186.3 262.9

Investing prof its 13.4 33.0 6.3 21.7 26.9Segment margin (%) Associated companies 6.5 2.5 2.2 3.5 10.3Property development 28.9 29.3 30.0 Finance costs -10.2 -10.7 -9.5 -6.0 -5.8Sale of developed land 40.0 30.0 30.0 Pretax profit 109.4 223.8 283.7 137.1 228.3

Net profit 85.3 201.3 211.1 107.3 182.8Basic shares (m) 4,327.8 4,327.9 4,329.6 4,335.6 4,349.2Basic EPS (sen) 2.0 4.7 4.9 2.4 4.2DPS (sen) 0.0 3.0 0.0 0.0 0.0FCF/ share (sen) -16.0 -15.1 -21.9 -23.8 -20.2Net cash/ share (sen) 1.8 1.3 2.6 0.2 6.9

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10 February 2014

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Equity rating definitions BUY Positive recommendation of stock under coverage. Expected absolute return of more than +10% over 12-months, with low risk of sustained downside. TRADING BUY Positive recommendation of stock not under coverage. Expected absolute return of more than +10% over 6-months. Situational or arbitrage trading opportunity. HOLD Neutral recommendation of stock under coverage. Expected absolute return between -10% and +10% over 12-months, with low risk of sustained downside. TRADING SELL Negative recommendation of stock not under coverage. Expected absolute return of less than -10% over 6-months. Situational or arbitrage trading opportunity. SELL Negative recommendation of stock under coverage. High risk of negative absolute return of more than -10% over 12-months. NOT RATED No research coverage, and report is intended purely for informational purposes.

Industry rating definitions OVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% over 12-months. NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return between –5% and +5% over 12-months. UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than –5% over 12-months.