• UEM Sunrise has proposed to dispose of its 20% shareholding in Aura Muhibah Sdn Bhd (AMSB) to Kuala Lumpur Kepong (KLK) for RM182.6mil cash.
• Currently, UEM holds a 60% equity interest in AMSB while KLK holds the balance 40% stake.
• After the proposed disposal, UEM will hold 40% of AMSB while KLK’s shareholding will increase to 60% from 40%.
• AMSB holds various parcels of land amounting to 2,500 acres in Senai, Johor. AMSB was supposed to develop a property development project, which is called Fraser Land Development, back in 2015 as part of Iskandar Johor.
• We are neutral on this development. On a positive note, KLK’s landbank in Johor would increase to more than 20,000ha. However due to the poor market sentiment, we believe that the group would not be launching property projects in Johor anytime soon.
• The loss of interest income to KLK from the payment of RM182.6mil to UEM Sunrise is small. We believe that the project has not been developed yet. However, we think that the land may still be planted with oil palm. Hence, there could still be some cash flows from the land. \
• The purchase consideration of RM182.6mil for the 20% stake in AMSB was based on AMSB’s NTA as at 30 April 2020 and the issue price of the RPS (redeemable preference shares) of RM1.00 per RPS.
• Based on past announcements to Bursa Malaysia, we believe that UEM’s original cost of investment back in 2014 was RM487.2mil for a 60%stake in AMSB.
• We maintain HOLD on KLK with a fair value of RM24.40/share

Source: AmInvest Research - 26 Oct 2020