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Thursday, November 4, 2010

UEM to take control of Sunrise for RM1.4b

UEM Land Holdings Bhd, the country's largest property developer by market value, plans to take control of rival Sunrise Bhd in a RM1.4 billion deal as it aims to be one of the biggest players in the region.

"That's our vision, to have our own version of CapitaLand," said UEM Land managing director and chief executive officer Datuk Wan Abdullah Wan Ibrahim in a media conference in Kuala Lumpur today.

Singapore’s CapitaLand is one of Asia’s biggest property developers with presence in over 20 countries.

The deal, which confirmed a Business Times report on Thursday, values Sunrise at RM2.80 a share, an 11 per cent premium to Sunrise's last traded price of RM2.52.

Deputy Chief Executive Officer Employees Provident Fund (EPF) Shahril Ridza Ridzuan and Group Managing Director/CEO of UEM Group, Datuk Izzaddin Idris at the press conference today. Pix by Mohd Khairul Helmy

According to UEM Land, 77 per cent owned by UEM Group Bhd, the deal will immediately boost earnings. It also allows UEM Land to take part in Sunrise's development in the Klang Valley. It will also strengthen UEM Land’s presence abroad.

"For example, we have a very nice piece of land in South Africa, it's a very strategic location, right at the harbour front. And now, we have the expertise to do it.

“Previously, it's quite daunting to think of I am going to build another Mont Kiara (in South Africa), but who is going to do it? Who are we going to send there?' Now, we can deploy the entire (Sunrise) team," said Wan Abdullah.

Major Sunrise shareholders, led by Datuk Tong Kooi Ong, Datuk Allan Lim and Tan Sri Tan Chee Sing, who collectively hold a 40.3 per cent stake, have agreed to UEM Land's offer. But UEM Land needs to have more than 50 per cent of Sunrise for the takeover to happen.

If more than 75 per cent of Sunrise shareholders accept the offer, UEM Land plans to take Sunrise private.

Tong, who was also present, expects the deal to be well received by investors even though it may mean a delisting of another entity on Bursa Malaysia.

"It will excite the market, because now we will actually have a very large property developer in Malaysia, a company that has lots of land bank, lots of potential, the right backing, a company that now has a nice brand and expertise.

“I think it will get a lot of foreign institution interests into the stock. Therefore I think it is positive for the capital market," said Tong.

The offer will be satisfied in one of two ways. The first option, known as the share alternative, is the offer of new UEM Land shares priced at RM2.10 each.

The second option, known as the cash conversion method, involves the issue of redeemable convertible preference shares at RM1 each.

After the deal is completed, scheduled at the end of the first quarter next year, UEM Group's shareholding in UEM Land will fall to between 56 per cent and 65 per cent, depending on the number of shares or preference shares issued.

Major shareholders led by Tong will also have stake of between 6 and 11 per cent in UEM Land.

But the parties admitted that there are concerns over the possible clash of corporate cultures.

"Mergers are clearly beyond P&L (profit and loss)... It was a major issue when this (the deal) was contemplated, but I think we have spent considerable amount of time thinking about this issue and thinking through this issue.

"What we will try to do is we'll try to allow the structure and the people in the two organisations to go parallel and not to force a merger. And then over time, to allow the interaction among the two parties, to feel comfortable with each other first, then crossing each other's boundaries," explained Tong.

The Sunrise brand will also be maintained.

"We will retain the Sunrise brand, because it is of great value. We don't intend to butcher it, certainly," said Wan Abdullah.

By Business Times

UEM Land to buy Sunrise for RM1.4b

Sources say the all-share offer values Sunrise at RM2.80 a share, 11 per cent higher than Tuesday's closing price of RM2.52

UEM Land Holdings Bhd plans to take over rival Sunrise Bhd in a deal valued at some RM1.4 billion to expand and develop the expertise to build and market luxury properties.

Sources said the all-share offer values Sunrise at RM2.80 a share. This is 11 per cent higher than its last closing price of RM2.52 on Tuesday.

Three major shareholders, including Datuk Tong Kooi Ong, who hold more than 40 per cent of Sunrise, have agreed to the deal, which is structured as a voluntary general offer.

"UEM Land needs the expertise in luxury development. They don't have the marketing capabilities," said one of the sources.
Sunrise, valued at RM1.25 billion currently, is well known for its high-end development at Mont'Kiara. Although its market value is half that of UEM Land, its net profit is bigger at RM134 million in the financial year to June 30 2010.

UEM Land is valued at RM2.45 billion and its net profit in the financial year to December 31 2009 was RM115 million.

Shares of both UEM Land and Sunrise have been suspended from yesterday until 5pm today. UEM Land is due to hold a press conference today to announce a mega corporate exercise.

The deal means that shareholders of Sunrise will still be able to profit from the potential future earnings of the combined group.

UEM Land is the developer of Nusajaya in Johor.

The company has 3,400ha of undeveloped land in Nusajaya, targeted to be developed by 2025.

It is also learnt that Tong will become a director of UEM Land and he will also chair the development committee of the group.

By Business Times

UEM Land buying stake in Sunrise?

KUALA LUMPUR: UEM Land Holdings Bhd is believed to be acquiring a substantial stake in Sunrise Bhd following requests for a trading suspension of their shares today pending an announcement.

According to filings with Bursa Malaysia, UEM Land and Sunrise have requested for the trading suspension that started at 9am yesterday to end at 5pm today.

In separate statements, the companies each said it would announce a “corporate exercise”.

Datuk Wan Abdullah Wan Ibrahim is expected to give details today.

In its statements to the stock exchange, UEM Land said it had requested for a trading suspension pending a “material announcement on a potential corporate exercise”.

Attempts to get UEM Land to comment were unsuccessful while a Sunrise representative said the company was not able to disclose details of its material announcement.

Market talk has it that the acquisition by UEM Land would be made via a share swap. According to analysts, there could be share swap between the companies which eventually could result in UEM Land becoming a substantial shareholder in Sunrise.

Another analyst said there were lots of speculation in the market currently. He said the acquisition could result in UEM Land privatising Sunrise. “If so, I’d imagine that UEM Land will issue shares to buy into all of Sunrise. Whether it’ll be fair to minorities depends on the mechanices of the swap.”

However, it is not certain whether the deal will be a straight share swap or share swap with cash option to Sunrise shareholders.

It is unclear what price UEM Land will pay for Sunrise, whose share price has been on an uptrend since Oct 27.

According to Sunrise’s latest annual report, Casa Unggul Sdn Bhd is its single largest shareholder with a 24.41% stake. Casa Unggul is a company controlled by executive chairman Datuk Tong Kooi Ong. The Employees Provident Fund Board has 12.61% voting shares in Sunrise.

Analysts said Tong did not address the potential corporate exercise with UEM Land at Sunrise’s analysts briefing yesterday to announce its quarterly results.

In a media advisory yesterday, UEM Land said it was “set to embark on a mega corporate exercise” with details to be announced today by managing director/chief executive officer Datuk Wan Abdullah Wan Ibrahim.

UEM Group Bhd group managing director/chief executive officer Datuk Izzaddin Idris is also expected to be present at the briefing.

Sunrise closed at RM2.52, its highest in 12 months, prior to its suspension yesterday. The counter has gained more than 22% year-to-date.

UEM Land has appreciated more than 84% year-to-date. It closed at RM2.26 ahead of the suspension.

Meanwhile, Sunrise is upbeat on its prospects for the current financial year ending June 30, due to its substantial unrecognised revenue of RM863.8mil as at Sept 30.

“The profits from these projects will be recognised over the current and subsequent financial years. The group is planning to launch new residential and commercial projects in the near future in order to sustain longer term profits,” Sunrise said in the notes accompanying its results

Sunrise posted a slightly lower net profit of RM36.7mil for the three months ended Sept 30 compared with RM37.3mil a year ago.

In a filing with Bursa, Sunrise said its pre-tax profit surged to RM52.2mil from RM50.2mil and earnings per share fell to 7.41 sen from 7.52 sen before. It also announced an interim dividend of 26.67 sen per share less 25% taxation amounting to RM99mil or 20 sen per share.

Revenue for the period was lower at RM171.3mil from RM190.3mil a year ago.

“Despite lower turnover, higher pre-tax profits were achieved on the back of higher margins and lower operating costs for the quarter under review,” Sunrise said.

The main contributors to the group’s financial performance for the quarter were its ongoing residential and commercial developments.

ECM Libra head of research Bernard Ching said on an annualised basis, the first quarter results came in within market expectations but below the research house’s full year estimates as it expected subsequent quarters to report strong numbers.

He said this was backed by the unrecognised revenue of RM863.8mil as at Sept 30 and including the strong sales from its maiden project in Canada, Quintet, the unrecognised revenue would swell to RM1.22bil as at Oct 31.

“The net interim dividend of 20 sen came as a surprise but we believe this is non-recurring. Nonetheless, we believe the company may reinstate its previous dividend payout guidance of 35% which has been scrapped over the last three financial years in order to conserve cash amid the uncertain economic outlook then.

“As the net debt/equity ratio of the company has been reduced from 0.52 times in FY08 to 0.34 times in FY10, we expect the company to have greater financial capability to reward its shareholders going forward,” Ching said.

Another local analyst said Sunrise’s results were OK and there was no major surprise. However, he concurred with Ching that Sunrise’s project in Canada did exceptionally well and almost fully taken up.

“The dividend was indeed a surprise. We were only expecting FY11 dividiend to be 5.5 sen,” he said.

By The Star

ECM keeps 'buy' call on Sunrise

ECM Libra Investment Research has maintained its "buy" call on Sunrise Bhd with the target price unchanged at RM3.58.

In a research note today, it said the target price was unchanged, pending the widely expected announcement of a corporate exercise today involving UEM Land Holdings Bhd.

ECM Libra reduced its numbers for the financial year 2011 to 2013 taking into account, retention of some units from future launches, for the operation of serviced apartments.

"But this will be offset by recognition of Quintet - residential project in Richmond, Canada - earnings on percentage completion basis at group level instead of at unit level.

"Despite our above consensus numbers, we still expect Sunrise to post record earnings in financial year 2011, backed by strong sales and unrecognised revenue," ECM Libra said.

Sunrise launched the phase one of Quintet with a gross development value (GDV) of RM374 million on Sept 28 and the project is sold-out as of to date.

Phase two with a GDV of RM825 million will be launched in the first quarter next year.

Meanwhile, Menara Solaris with a GDV of RM480 million is expected to be launched within the next three weeks.

During the first quarter financial year 2011, property sales of about RM100 million was achieved, but this does not include RM351 million sales from Quintet achieved in Oct 2010.

Unrecognised revenue remains flattish quarter-on-quarter at RM864 million but would swell to RM1.2 billion in Oct 2010, ECM Libra said.

OSK Research, meanwhile, said it is maintaining a "buy" call on Sunrise but downgraded the target price to RM4.33 from RM4.62 previously.

This was due to the unexpected interim dividend surprise of 26.67 sen as well as some changes to its forecast assumptions on the Quintet.

OSK Research is upgrading Sunrise's financial year 2011 and 2012 earnings upwards by 5.6 per cent and 12.1 per cent respectively.
The management has been guided that earnings from the Quintet, including phase two, would be recognised on a progress billing basis.

Although Sunrise's first quarter financial year 2011 turnover fell by 10 per cent year-on-year, net profit dipped by a mere two per cent as progress billings from its recently launched high-margin projects, such as 11 Mont Kiara and 28 Mont Kiara, picked up momentum.

On the other hand, quarter-on-quarter turnover surged 32 per cent but net profit dropped five per cent on higher expenses incurred on commencement of its Canadian project.

Sunrise's latest unbilled sales totaled RM1.22 billion amounting to 2.1 times of financial year 2010 total turnover.

By Bernama

New rule to cool property speculation

Bank Negara Malaysia has put in place a rule that allows banks to lend only up to 70 per cent of the house value.

The new mortgage lending rule, which applies only to borrowers taking up a third housing loan, is meant to curb excessive investment and speculative activity in urban areas.

"While Malaysia is not experiencing a general property price bubble, targeted pre-emptive measures are appropriate to moderate the increases in property prices that are evident in select locations, arising from purchases that are speculative in nature.

"This measure is expected to moderate excessive investment and speculative activity in the residential property market and to ensure affordability of homes for genuine house buyers," Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said in her keynote address at the Financial Industry Conference in Kuala Lumpur yesterday.

She gave the assurance that financing facilities for the purchase of first and second homes would not be affected and that borrowers would still be able to obtain financing for these at the current loan-to-value ratio (LVR) applied by individual banks, based on their internal credit policies.

The new rule takes effect immediately. Banks were previously not subjected to any curbs on mortgage lending.

The Association of Banks in Malaysia (ABM), whose members comprise the country's 23 commercial banks, supported Bank Negara's move, saying that it was "timely and pre-emptive".

"While the banking sector is wholly in support of house ownership, we agree that appropriate measures should be adopted to avert unhealthy speculative activities which could lead to a property bubble," its chairman Datuk Seri Abdul Wahid Omar said in a statement yesterday.

Abdul Wahid, who is also the chief executive officer of top lender Malayan Banking Bhd (Maybank), said the move was not expected to dampen or have an adverse impact on the growth of residential property development, nor on the banks' house financing business.

The ABM and its member banks had engaged with Bank Negara on the matter prior to the latter coming out with the ruling.

A banking analyst from a foreign brokerage noted that most banks, particularly the bigger ones, already adopt strict LVR on borrowers taking up a second, and especially third, housing loan, with location also being an important factor.

As such, the analyst agreed with Abdul Wahid that the new rule was not likely to have a big impact on the banks' mortgage business.

"On a third loan, it's already quite hard to get an 80 per cent LVR now," she remarked. For a first loan, banks usually lend up to 90 per cent of the house value, or even up to 100 per cent in some cases.

The country's biggest mortgage players by market share are Public Bank Bhd, CIMB Bank Bhd and Maybank.

Property developer Mah Sing Group Bhd also does not see the new rule hurting overall sentiment of the market significantly as it comprises mainly first-time buyers and upgraders.

Neither does its group managing director Tan Sri Leong Hoy Kum see a property bubble building up as the price increases have been largely those of properties with good concepts by well-known developers and in good locations.

Zeti, in her speech, noted that residential property prices in the country had increased steadily in tandem with economic development and rising household income.

"In the more recent period, however, certain specific locations, particularly in the urban centres, have experienced faster growth, both in house prices and the number of transactions. Supporting this trend has been the increase in financing for multiple-unit purchases by a single borrower. This suggests investment activity that is of a speculative nature," she said.

Property prices in Malaysia rose 5.6 per cent in the first quarter of this year and 4.2 per cent in the second quarter, according to Bank Negara.

By Business Times

New mortgage rule 'positive' move: Citi

Malaysia’s move to tighten mortgage rules is “positive” for the nation’s banks as it will help prevent a property bubble and limit the risk of household non-performing loans, Citigroup Inc analyst Fiona Leong said in a report yesterday.

The central bank yesterday placed a limit on the loan-to-value ratio for people taking out third mortgages to buy homes in a bid to moderate “excessive” investment and speculation in urban areas.

Banks with bigger exposure to home mortgages are Hong Leong Bank Bhd and Alliance Financial Group Bhd, Leong said.

By Bloomberg

Support for Bank Negara’s housing LVR cap move

PETALING JAYA: Bank Negara’s imposition of a maximum loan-to-value ratio (LVR) of 70% for a third and subsequent housing financing facility taken by a borrower is seen as a timely pre-emptive measure to avert unhealthy speculative activities and a potential property bubble, industry players concurred.

With the latest measure that takes immediate effect, people buying their third and subsequent house would be required to pay a higher down-payment than the current standard minimum of 10% of the value of a house.

In a statement yesterday, the central bank said financing facilities for purchase of first and second homes would not be affected and borrowers would continue to be able to obtain financing for these purchases at the present prevailing LVR level applied by individual banks based on their internal credit policies.

Real Estate and Housing Developers Association president Datuk Michael Yam said the association supported the measure as it would ensure a healthier and orderly housing market.

“There are some hot spots in the housing market where prices have appreciated higher than the average price increases in other locations. As financing for the first and second housing properties will not be affected by the ruling, the move is not expected to dampen the performance and growth of the housing property sector.

“Meanwhile. the LVR cap on those buying their third and subsequent house should stem speculative buying and ensure a more sustainable housing market,” Yam added.

Mah Sing Group Bhd group managing director cum group chief executive Tan Sri Leong Hoy Kum said the move was not surprising as Bank Negara had given earlier indications of such a move.

“The move should not significantly affect the overall sentiments of the market which comprises mainly first-time buyers and upgraders.”

Leong said there was no property bubble as price increases were only for properties with good concepts in good locations.

“As long as developers offer quality properties with good concepts in prime locations, there should still be takers due to our strong employment market, low interest environment and good liquidity in our financial system,” he added.

National House Buyers Association honorary secretary-general Chang Kim Loong said the measure would help curb speculative buying in the local housing market.

“Prices of landed residential properties have increased substantially over the last five years.

“We are glad that the Government has heeded HBA’s call with regards to the LVR. We will next seek to make housing more affordable for middle-income households and have pricing control for this group of buyers.

“HBA has urged the Government to set up a Special Task Force with such an objective and aspiration,” he said.

RAM Ratings head of financial institution ratings Promod Dass said: “Given this LTV measure only applies to the third home loan onwards, there should still be ample opportunities for banks to focus on first-time home buyers and perhaps to finance the purchase of a second home for lifestyle upgrading purposes.”

“All said, the level of prevailing interest rates would be an important factor too for the health of home loans, given that the bulk of outstanding home loans are based on floating interest rates,” he said in an e-mail interview.

The Association of Banks in Malaysia (ABM) chairman Datuk Seri Abdul Wahid Omar said while the banking sector supported house ownership, ABM agreed that appropriate measures should be adopted to avert unhealthy speculative activities which could lead to a property bubble.

Abdul Wahid, who is also Malayan Banking Bhd president and CEO, said: “In my view, the application of the measure is clear and specific and the LTV ratio itself, optimal.

Given that financing for first and second housing properties will not be affected by the ruling, the move is not expected to dampen or have an adverse impact on the growth of residential property development sector as well as the banks’ house financing business.

“Affordability of homes for genuine buyers will be preserved as banks continue to lend prudently under their respective risk management framework.”

On the Financial Capability Programme, he said it underscored the view shared by ABM that education was paramount in the promotion of sound financial and debt management.

Details of the implementation of the programme would be announced next month.

By The Star

JP Morgan: Buying opportunity in property share price weakness

KUALA LUMPUR: JP Morgan Asia Pacific Equity Research said any weakness in share prices from the Bank Negara Malaysia announcement on the imposition of a 70% loan-to-value cap (LVR) on mortgages for third properties as “a buying opportunity”.

In a research note issued on Thursday, Nov 4 it said the new ruling was clearly targeted at speculative buyers. Genuine first and even second time home buyers would not be affected, and would still be able to obtain financing of up to 90%.

“This is in line with guidance and not a surprise to the market. The government has already provided hints on this possibility over the past couple of months. Note however that even prior to this, banks have generally been stringent with the previous 90% ceiling LVR already not a common practice as much depends on the credit profile of each customer,” it said.

JP Morgan said on balance, it remains positive. In the short term, developers with higher exposure to the more speculative condo/high rise market (namely in the KLCC and Mont Kiara area, Klang Valley) and even for high-end landed properties in certain limited hot spot locations in Klang Valley (i.e. Desa Park City, Mutiara Damansara) and in Penang, could see some softening in demand.

“Overall however, we believe the move is positive for the long term sustainability and health of the sector,” it said.

It maintained its overweight on IJM Land and SP Setia, but preferred the former on valuation. The more speculative condominium market accounts for no more than 20% of sales for SP Setia and 35%-40% for IJM Land.

“For IJM Land, its strong branding, attractive product portfolio at the 'Light' project, and shortage of land in Penang island, also means that it should continue to fare better than most other condo developers, in our view,” it said.

JP Morgan said both companies could also benefit from upside to earnings from new projects i.e. from the commercial KL Eco City project for SP Setia to be launched by year-end, and from the Canal City residential project for IJM Land to be likely launched in 2011.

“We see any weakness in share prices from this announcement as a buying opportunity,” it said.

It said IJM Land was currently trading at a 30% discount to its RNAV of RM3.80/share, while SP Setia is already trading close to its RNAV of RM5.20/share.

During periods of strong liquidity and foreign inflows back in 2007 coupled with healthy sector fundamentals, SP Setia traded up to a 20% premium to RNAV.

By The EDGE Malaysia

Mah Sing buys land worth RM167m

PROPERTY group Mah Sing Group Bhd is buying two pieces of land in Ampang and Cyberjaya for a combined RM167 million and plans to build properties with a total gross development value (GDV) of RM1.2 billion.

The 1.9-hectare freehold land along Jalan Ampang, Kuala Lumpur, is being bought for RM114.9 million or about RM560.63 per sq ft. The development, which will be known as M City, is about 1.26km from the group's recently launched serviced residence project, M Suites.

M City will be a niche project comprising serviced residences, SoHo (small office, home office) and retail outlets with an estimated GDV of RM920 million to be developed over five years.

Preliminary plans for M City include flexible-sized serviced residences and SoHo with built-ups from about 500 sq ft with indicative pricing from RM398,800 a unit.
"We are toying with the idea of vertical green lungs in M City. It will be a new concept for the area," group managing director and group chief executive Tan Sri Leong Hoy Kum said in a statement.

The group is also buying 14.11ha land adjacent to its Garden Residence township in Cyberjaya for RM51.6 million.

It intends to develop two- and three-storey semi-detached homes with a built-up area of about 3,076 sq ft. Indicative pricing is around RM1.28 million for the two-storey semi-detached unit and RM1.44 million for the three-storey semi-detached unit.

To date, Mah Sing has acquired new projects with a combined gross development value of RM3.1 billion.

The group has projects with remaining GDV and unbilled sales of about RM8.64 billion.

Mah Sing's land are in the Klang Valley, Kuala Lumpur, Penang and Johor Baru. They should last the group between five and seven years.

By Business Times

Mah Sing buys land in Ampang, Cyberjaya

KUALA LUMPUR: Mah Sing Group Bhd has acquired two parcels of freehold land for RM166.5mil which are expected to generate a combined gross development value (GDV) of RM1.2bil.

The 1.88ha in Jalan Ampang, named M City Jalan Ampang, will be a niche project comprising serviced residence and retail outlets with an estimated GDV of RM920mil to be developed in five years.

“The land is flat and vacant and ready for immediate development. Furthermore, conversion premium to commercial development has been paid for part of the land and it comes with a sub-structure for two levels of basement car parks,” group managing director and group chief executive Tan Sri Leong Hoy Kum said in a statement yesterday.

Mah Sing has also acquired a 13.94ha freehold land next to its Garden Residence township in Cyberjaya which will add RM280mil to Garden Residence’s GDV and expand the township size to 60ha.

“Together with this latest acquisition, Garden Residence is a sizable project which will take between three and five years to complete.

“It is certainly an opportune time to replenish our land bank in order to meet the strong demand and we intend to create an exclusive enclave of semi-detached homes on the new land,” Leong said.

To date, the group had acquired new projects with a combined GDV of RM3.1bil. – Bernama

Meanwhile, it currently has projects with remaining GDV and unbilled sales of RM8.64bil.

By Bernama