- Maintain BUY on UEM Sunrise (UEMS) with an unchanged fair value of RM2.97/share, at a 30% discount to its sum-ofparts (SOP) value. UEMS announced last Friday it has entered into an agreement with KL Kepong to develop properties in Iskandar Malaysia (IM).

- Both parties would form JV companies to co-develop 3,000 acres of landbank with a total GDV of RM20bil. Under the agreement, UEMS would inject 500 acres in Gerbang Nusajaya and KLK would inject 2,500 acres in Kulai Jaya.

- KLK will lead the Gerbang development via a 60:40 JV with UEMS. The mixed-use land, to be developed over eight years (GDV: RM5bil) is to tap on the expected pick-up in residential homes when several catalytic projects within the area take shape (e.g. FASTrack Iskandar).

- The larger KLK land (2,500 acres), also named Fraser Metropolis, will be under Arus Muhibah, a 60:40

partnership between UEMS and KLK. It will be developed over 15 years with a GDV of RM15bil.

- Fraser Metropolis (Phase 1: 15 years) is a mixed-used township within the Senai-Kulai zone that mainly focuses on the mid-end segment and rising demand for industrial space from Singapore and Chinese investors.

- Both land parcels are located north (~40km) of IM and 30 minute-drives from JB. Arus Muhibah also has the option to acquire another 2,500 acres within 10 years.

- UEMS and KLK will inject their respective land into the JVs at RM871mil each, although the Gerbang land is valued higher at RM40psf vs. RM8psf for Fraser Metropolis. We believe that the premium reflects Gerbang's existing infrastructure cost and strategic location close to the Tuas second link.

- We believe UEMS’ latest move forms part of its plans to forge strategic partnerships to develop its Gerbang land while diversifying its landbank outside Nusajaya.

- UEMS expects to book a net gain on disposal of RM380mil from the Gerbang land. After this, we gather that UEMS still has some 2,000ha of its Gerbang land remaining that is available for development.

- We are neutral for now and maintain our forecast as:- (i) Fraser Metropolis is a long-term project; and (ii) the pact is still untested and it is KLK’s first large-scale township in IM.

- Moreover, the impact is not immediate; both land deals are only expected to conclude in 3Q15 (commencement: 2017).

Source: AmeSecurities