UEM Sunrise: Rising up to the challenge

UEM Sunrise land bank and affordable housing projects give it the edge

At the end of August, Anwar Syahrin Abdul Ajib would have been the managing director and chief executive officer of UEM Sunrise Bhd for one year.

The former chief financial officer of MMC Corp Bhd says things would have been very different had he joined the country’s largest property company two years ago.

“It’s tough. When I was at MMC, it was at the holding company and we had concessions. In a property company, I have to deal with products and customers,” he says.

“Two years ago, people would buy regardless. Now, they are choosy about what they want. You really got to earn their money.”

Selling property is a challenge in the current market and Anwar will require much persuasion and quality products to move UEM Sunrise’s products in the current market.

Conditions at best now are sluggish. One report on the current state of the industry suggests that it has been quiet for developers during the second quarter of this year, as sentiment is weak and getting loans has been tough.

The research house found that the majority of property companies it tracks are behind their sales targets for this year

“While we gather that bookings and registrations are high, possibly due to pent-up demand, the tighter lending environment has resulted in higher attrition rates when it comes to converting booking sales to sale and purchase agreements. As a result, data on take-up rates is still lacking and since we are only at the half-year mark, this does raise concerns on whether developers can meet even their already toned-down sales targets,” says the report.

Anwar agrees that the market is tough and the measures taken to contain borrowing levels and the introduction of the goods and services tax has had an impact.

There is one bright spot though for developers such as UEM Sunrise. Affordable housing is moving and first-time home buyers are in the market looking for a house.

It managed to sell out the first phase of its Serene Heights project in Bangi, as the price appealed to such buyers. The second phase, where prices are higher, has sold about 30%.

“It shows that if people want to buy, they are sensitive to the price. From that angle, we are encouraged,” he says.

Valuations at a low

The one thing going for UEM Sunrise is its landbank. It has close to 15,000 acres locally and overseas, but 77% of that is in Johor.

With the market weak in Johor, UEM Sunrise’s market capitalisation and its share price have taken a big hit in recent times and it is now, as one analyst puts it, trading at a historical low.

“It’s trading at 0.7 times its book value when traditionally the company used to trade at between 1.8 and 2.1 times its book value,” says an analyst.

“The overall story is not appealing and it will take time for the company to change its direction. Investors are preferring to wait and see how that progresses before buying into the stock.”

Another analyst says the value of its land is still intact. “We just have to wait it out. It’s a cycle,” he says.

Anwar says there is little that can be done with UEM Sunrise’s share price.

“The market decides that. If you work backwards, we have to accelerate certain things, especially on the sales front. To accelerate sales, we have to be aggressive in our landbanking, product launches, and activities we do within the organisation,” he says.

“I have my targets to achieve and we are working backwards to achieve that. We are focused on earnings and we can’t focus on the share price. We certainly cannot go along the current pace we are doing. That’s the challenge I have thrown to the team now, especially on landbanking.”

Diversifying its exposure

UEM Sunrise’s problem is its exposure to the Johor market. When times were good a few years ago, Iskandar Malaysia was a gold rush for property developers. Conditions have changed today, as the price of property has soared and sentiment soured. Buyers from Singapore are a trickle of what they used to be.

That is encapsulated by the decline in the company’s market capitalisation. From RM10.7bil at the end of 2013, it has fallen to RM4.4bil today.

“To me, people are pessimistic about the company, but we have a lot of things coming along. I’m fine with that and will focus on the fundamentals, and gross development value (GDV), earnings and revenue growth. We have to be creative because the competition is tough. It’s not easy, but it is a good challenge,” says Anwar.

UEM Sunrise has made it known that it is diversifying its reliance on Iskandar Malaysia in the hunt for profits and has committed RM500mil a year to snap up land in other areas in Malaysia.

“Concentration risk is there. I would rather say we are expanding our landbank outside of Johor, but we believe in the long-term story of Johor,” says Anwar.

He says landbanking is about managing opportunities and the company will pay more than the set limit if something good comes along.

“As long as the banks are there to support us, we can actually play around with our portfolio of assets as well to diversify a bit of our land into Kuala Lumpur. Then I think the board will be supportive. They have given me the green light to look at that,” he says.

UEM Sunrise cannot abandon Johor and it thinks it will be a long-term eventuality that businesses shift out of Singapore into southern Johor.

“A lot of investments are going into Johor. The position we are in with Singapore is temporary and eventually everyone will come to their senses that Singapore needs to move away. Some of their manufacturing activities need to be out of the island,” he says.

While demand for residential houses is sluggish, that is not the case for properties in industrial parks.

Anwar says demand by businesses for factories has been strong, giving the example of SiLC (Southern Industrial and Logistics clusters), an RM1.3bil GDV project.

“We have sold out the two phases of the project. Now we have close to 300 acres of SiLC phase 3. The queries for phase 3 are tremendous. The price of phase 3 is 15 times that of phase 1. Now, it is RM100 per sq ft for an industrial park. It is really picking up,” he says.

Selling industrial lots fits into UEM Sunrise’s plans of creating critical mass in Iskandar. It’s clear that while many homes are sold, a lot are unoccupied and are held as either a weekend home or for investment.

By having businesses locating their operations in Iskandar, UEM Sunrise hopes the employment created will feed into the demand for homes.

“Once the parks come to full fruition, we may have 40,000 workers and that will create a lot of demand for residential units,” he says.

With the focus on building Puteri Harbour, Nusajaya and Medini, UEM Sunrise thinks the catalytic projects that are springing up throughout Iskandar will be the catalyst for the development of the area.

UEM Sunrise says it will not change development plans it has drawn up. It will tweak the pace of which those plans are executed. It will tweak plans for Gerbang Nusajaya depending on the status of the high-speed rail between Malaysia and Singapore.

Investing overseas

UEM has a big project in Melbourne, Australia and it has been a big driver of earnings for the company. One reason for that is the ability to recognise contributions from those projects based on the progress, something its auditors have allowed the company to do.

That project is Aurora Melbourne Central and it is going to launch another called Conservatory. It recently acquired a 21-storey office tower on 412 St Kilda Road, the third property in Melbourne, for RM161mil.

Anwar says the reason for its foray internationally is the ability to sell property in Australia.

“We have our brand and our products. We are looking to emulate what we have done here over there,” says Anwar.

“Our international operations are important.”

He says UEM Sunrise is looking at the UK for a deal, as there are a lot of opportunities there. The only issues are pricing and its appetite.

“That’s why I need to find a balance on how we manage our funds,” he says.

“I would like to see our international business grow and in a way provide a hedge against currency fluctuations as well,” he says.

Anwar says the diversification out of Johor is enough for the time being.

“We are looking outside of the Klang Valley. The new ones we are looking at have a GDV of between RM3bil and RM5bil. That’s enough to drive earnings in the next five to 10 years and reduce the dependency on Johor,” he says.

“There are a lot of opportunities. We are looking at Penang, and the north and south of KL. We are looking at Kota Kinabalu as well. I think there is enough.” - By The Star