Highlights

Company Visit… We recently hosted a meeting with En Azhar (CFO of ULHB) and Pn Masleena (Corporate Planning), and came away feeling reassured with its corporate strategy and direction.

Prime landbank in Puteri Harbour (PH)… PH continues to be the group’s flagship. However, we understand that ULHB now has only circa 68 acres of balance land in PH, hence it will need to start making serious moves to beef up its landbank. We reckon that ULHB has RM4.1bn of gearing headroom before net gearing hits 0.5x. We gather that it is open to acquiring more land in Klang Valley and East Malaysia, but may not be as excited about Penang, given its lack of greenfield landbank.

Creating sustainable critical mass… With the initial wave of catalytic projects having come on-stream (Figure #1), ULHB now needs to focus on helping Nusajaya reach a true “tipping point”, which we believe can be achieved by providing for affordable housing (in the range of RM200-300k), to encourage Malaysians from other states to migrate to Nusajaya to seek employment opportunities.

Cash is king… With the group now turning around the corner in terms of cashflow (Figure #2), we believe that ULHB will now be in a better position to generate cashflow to provide more warchest for land acquisitions.

Catalysts

Population growth in Nusajaya.

Risks

Nusajaya fails to achieve critical mass; failure to achieve RM3.0bn sales target; high-beta stock.

Forecasts

Maintained.

Rating

BUY

Positives: highly liquid proxy to property sector; large war-chest for landbank acquisitions; rich in newsflow.

Negatives: Share price is highly news-driven; vulnerable to external slowdown; highest P/E multiple in the sector (>2x sector average).

Valuation

Raising RNAV… Post the elections, we believe that uncertainties surrounding the prospects of ULHB have been lifted, which have result in restored confidence and rapidly rising land prices.

Accordingly, we have raised our land value assumptions for its Nusajaya and PH land. We now raise RNAV and TP by 28% to RM4.04, and upgrade ULHB to BUY.

Source: Hong Leong Investment Bank Research - 13 Jun 2013