- Kuala Lumpur Kepong Bhd (KLK) has proposed to dispose Fraser Land, which measures 2,500 acres, to a subsidiary of UEM Sunrise Bhd for RM871.2mil or RM8/sq ft.

- UEM Sunrise has proposed to sell Gerbang Land, which covers 500 acres, to a subsidiary of KLK for RM871.2mil or RM40/sq ft.

- KLK will still have exposure to the development of Fraser Land via its 40% equity interest in UEM Sunrise’s subsidiary that is buying Fraser Land. Similarly, UEM Sunrise will still have exposure to the development potential of Gerbang Land through its 40% associate interest in KLK’s subsidiary.

- This is essentially a land swap between KLK and UEM Sunrise. KLK is swapping its land in Senai, Kulai Jaya for a parcel of land at Nusajaya, Gelang Patah.

- We view this positively. KLK’s long-term growth in property development would be partly supported by its future project at Nusajaya. Gross development value of the Gerbang Land project is estimated at RM5bil over eight years.

- We believe that Nusajaya is a better location compared to Senai. Nusajaya is in Flagship Zone B of Iskandar Malaysia compared with Senai, which is in Flagship Zone E.

- Future developments in Flagship Zone B include Medini Mall and Pinewood Iskandar Malaysia Studios. Completed developments in the zone were Columbia Asia Hospital and Marlborough College.

- KLK will record a net gain of RM816.8mil (net of RPGT) from the disposal of Fraser Land. Fraser Land was acquired at RM11.3mil in 1989. KLK said that it would be using the disposal proceeds for working capital including funding for the property project at Gerbang Land.

- Loss of plantation earnings from the disposal of the Fraser Land is not expected to be significant. KLK’s plantation landbank would decline by roughly 1,000ha, which translates into a decline in FY15F net profit of about 1%.

- KLK’s property division is expected to account for 6% of KLK’s FY14F EBIT. We believe that the group would reduce the number.

Source: AmeSecurities