News

RM4bn pipeline… Over the weekend, the Edge Weekly reported that UEMS plans to launch RM4bn worth of properties this year, with RM3bn coming from Nusajaya (NSJ) while the balance will come from its central and international developments. UEMS plans to launch a 164-acre township in Bangi by end 2013.

Hunting for land… Its CEO stated that despite already having a massive landbank (6,000 acres in NSJ and 3,000 acres elsewhere), UEMS will pursue a growth strategy via landbanking in the “Big 3” markets and Sabah. Previously, UEMS did not express interest in Penang or Sabah, but now appears to be open to exploring these new markets.

Overseas ventures… The CEO also said UEMS is open to developing projects overseas, and that UEMS has some land in Durban, South Africa.

Financial impact

Difficult to quantify, but positive long-term.

We expect land acquisitions to increase net gearing, which still remains comfortably low at 0.16x, which implies RM4.1bn of gearing headroom before net gearing hits 0.5x.

Pros / Cons

We are cautiously optimistic of UEMS’ plans to launch RM3bn of projects in NSJ, given the robust demand there. We believe UEMS has a safety net in the sense that it is in a position to control the supply/demand situation in NSJ, which should help prevent the dreaded property overhand situation. Moreover, we expect bulk of the launches to be in the high-value Puteri Harbour, which continues to enjoy strong demand from foreigners and wealthy Malaysians.

Given its low net gearing (below 0.2x), we expect UEMS to acquire both township and niche high-rise landbanks, as it now has strong execution capabilities for both segments of the property market. Management’s tone suggests some major deals could be struck soon, before the end of the year.

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

We maintain TP at RM4.04 (no discount to RNAV).

Source: Hong Leong Investment Bank Research - 1 Jul 2013