HLIB is wary of UEM Sunrise's near-term prospects despite the sale of its South African asset

 By NST Property - August 23, 2022 

A strategically located development near the Point in Durban with luxury hotels, residences and a retail complex.

Hong Leong Investment Bank (HLIB) is still wary of UEM Sunrise Bhd's near-term prospects, despite selling its interest in a South African real estate development company for a gain of RM20 million.

The investment bank is being cautious given the deteriorating sales momentum following the completion of the Home Ownership Campaign (HOC), the increase in building costs, and the labour scarcity situation.

The company also has a sizable land bank exposure in Johor, where the local real estate picture is still dim, according to a research report published by HLIB.

"While we view the recent corporate exercise, including this divestment as well as the recent Kuala Lumpur land acquisition and Johor land disposal positively as UEM Sunrise is moving ahead to optimise its land and development portfolio for a more targeted and sustainable growth plan forward, nonetheless, we are still cautious on the company's near term prospects," the investment bank said.

Despite this, HLIB supports UEM Sunrise's plan to sell land in South Africa since it believes the project is too far along and challenging for the firm to supervise.

The company will be able to reorganise its operations and concentrate its resources on projects where it has the expertise, visibility, and presence, as a result of the disposal, according to HLIB.

On August 19, 2022, UEM Sunrise stated that it was selling its 80.4 per cent stake in the South African real estate developer Roc-Union Proprietary Limited (Roc Union) to Olive Investment Trust for RM38 million.

Discussions on potential partnerships between Malaysia and Africa took place in 1994 between Malaysia's former Prime Minister, Tun Dr. Mahathir Mohamad, and South Africa's former president, President Mandela.

As a result, in 1998, a joint venture called Roc-Union was created by the subsidiary of UEM Sunrise and a local South African business called Vulindlela Investment.

The JV purchased a 70.2-acre freehold plot of property near the Point in Durban, South Africa. The JV is the project's master developer as well as the project's landowner.

The project's goals included generating investment possibilities and rebranding Durban as a cutting-edge African metropolis. The development will also contain office buildings, retail stores, hotels, and recreational areas among other improvements.

The South African project's remaining land bank currently consists of 31 acres, according to HLIB.

The sale from UEM Sunrise is contingent on the sale of the 19.6 per cent remaining stake by its joint venture partner, which must be finished within 30 days of August 19, 2022.

It is anticipated that the final settlement of the RM38 million sales revenues will be finished 33 days after August 19, 2022, or on September 22, 2022.

UEM Sunrise will completely leave the South African market post divestment.

After this divestment and the company's most recent purchase of land in Kuala Lumpur on August 4, UEM Sunrise's net gearing will grow to 0.53x (from 0.5x as of March 31, 2022), according to HLIB.

UEM Sunrise purchased a freehold plot of property in Kuala Lumpur's Jalan Sultan Yahya Petra (formerly known as Jalan Semarak) for RM384.04 million.

Its indirect wholly-owned subsidiary, Lucky Bright Star Sdn Bhd, entered into a sale and purchase agreement (SPA) with Nippponkey Sdn Bhd for the land acquisition.

The purchase will be partially funded with cash (RM235.8 million), with the rest sum to be paid in kind using the company's 107.82-acre Gerbang Nusajaya property in Iskandar Puteri, Johor.

The proposed project in Kuala Lumpur is anticipated to create a gross development value (GDV) of RM1.5 billion over four years, starting with its anticipated launch in 2024, according to UEM Sunrise.

Sufian Abdullah, chief executive officer of UEM Sunrise, reportedly said that the company has noticed a high and sustained demand for small to mid-sized products close to the Kuala Lumpur Convention Centre (KLCC) and priced below the RM1 million price point.

With the most recent addition, UEM Sunrise's landbank in the Greater Kuala Lumpur region now stands at roughly 265.3 hectares, or RM30.7 billion in GDV, providing the business with durable and sustainable growth over time.