News

UEMS and KLK are jointly developing two parcels of land in IDR, namely Fraser Estate and Gerbang. We outline the salient details on page 2 of our report.

The Fraser land parcel (initial 2500 acres) will be developed by Aura Muhibah Sdn Bhd (AMSB) into an integrated development including residential, industrial and commercial elements, to be known as Fraser Metropolis @ Iskandar North (FM). GDV is RM15bn over a period of 15 years.

The Gerbang land parcel (500 acres) will be developed by Scope Energy Sdn Bhd (SESB), and will also be a mixed development. GDV is RM8bn over a period of 8 years.

FM Phase 2 (on top of the initial 2,500 acres): KLK has granted AMSB a 5-year option to acquire 500 acres of contiguous land, which shares a common boundary with the Fraser Land and is part of the Additional Land.

FM Phase 3: In addition, AMSB will enjoy a 10-year ROFR from KLK, should KLK decide to dispose part of an additional 2,000 acres of land (“Additional Land”) which currently shares a master title with the Fraser Land.

Financial impact

For UEMS’s disposal of its 500 acres of Gerbang land to SESB, it is expected to enjoy RM171m net disposal gain, likely to be recognised in late FY14 or in FY15.

Given development is expected to commence by 2017, earnings impact will be minimal.

Pros / cons

Land replenishment exercise. This deal provides UEMS with a 60% stake in the 2,500 acre Fraser Land. Given that Gerbang accounts for 4,500 acres out of UEMS’ balance 5,500-acre landbank, we are pleased to note that this deal offers UEMS access up to potentially 5,000 acres.

Favourable terms. The Fraser Land was injected at RM8psf, which compares favourably with RM22psf Dijaya paid for its Plentong land back in 2011. The Gerbang land was injected into SESB at RM40 psf, which compares well with the recent transaction price range of RM70-80psf in SiLC Nusajaya.

Risks

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

Forecasts

We raise FY15 forecast by 25% to factor in RM171m post-tax gains from disposal of land to SESB.

Rating

HOLD

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

Given the sector headwinds UEMS faces currently and recent weakness in share price, we maintain our HOLD call and reduce TP from RM2.43 to RM2.23 (45% discount to RNAV).

Source: Hong Leong Investment Bank Research - 10 Feb 2014