Outperform

12-Month Target Price RM2.15

UEM Sunrise (UEMS) entered into a joint venture and shareholders’ agreement with Mulpha International Berhad (MIB) to jointly develop and optimize the value of 38 parcels of freehold land with a combined land size of 231.35 acres, of which 2 parcels measuring 140.13 acres are from UEMS and the remaining 91.22 acres from MIB. The land is located at Gerbang Nusajaya and near MIB’s flagship development, Leisure Farm Resort. Both companies will own 50%:50% stake in the JV company undertaking the mixed development spanning 20 years with an estimated GDV over RM5bn. Earnings are kept unchanged as we believe the contribution from the JV will not be meaningful near term. Maintain Outperform with TP of RM2.15 (30% discount to RNAV).

• Land price. The base land price of UEMS land is RM315.2m or RM51.64 psf, while MIB’s land is valued at RM312.7m or RM78.70psf. Hence, the JV is similar to the JV with KLK in which minimal cash outlay is involved. UEMS might have to incur some costs in re-zoning the land and obtaining the approvals for the proposed density for the development. We are positive on the deal as this will expedite the development for Gerbang Nusajaya and also leverage on MIB’s strength in premium lifestyle development (ie. Leisure Farm Resort). In addition, the land value fetched for UEMS is attractive (i.e. c.29% higher) when compared to the KLK JV. To recap, the 400-acre land swap with KLK was transacted at RM40psf back in 2014.
• Development mix. We understand that UEMS and MIB will develop the land into a mixed residential and commercial development which among others consists of luxury landed villas, mixed-used development and neighbourhood retail shop projects. The development period is 20 years with GDV estimated to be more than RM5bn. We understand that planning for the development will commence in 2H16, with Phase 1’s estimated GDV of RM150m expected to be launched in 2018. The development of the land, which is located next to Leisure Farm resort, will be led by MIB and the remaining of the land near Gerbang Nusajaya, will be developed by UEMS.

Source: PublicInvest Research - 17 Feb 2016