News

• UEM Sunrise entered into a JV agreement with WCT to acquire 50% stake of Jubilant Courtyard, which owned 608.63 acres of land located in Mukim of Bandar Serendah for RM214.9m. The lands are strategically accessible via North-South Highway.

• The JV agreement is conditional on approval on rezoning of lands to mix development.

• The deal is expected to be completed by 2Q16. Financial Impact

• The acquisition price translated to RM16.2 psf as compared to WCT’s previous acquisition price of RM12 psf in Oct 14 (bought 220.4 acres for RM115.4m) and Mah Sing acquisition price of RM16 psf for M Residence 3 in Rawang in 2013.

• Land cost is about 14% of total estimate GDV of RM3bn, which we deemed the acquisition price as fair.

• Balance sheet remain solid with net gearing expected to increase slightly from 0.29x to 0.32x which still provides room for future landbank acquisition. We estimated the potential development to increase RNAV by circa 1%.

Pros/Cons

• We are slightly positive on the proposed joint venture development with WCT as it will help to expanding its land bank in Klang Valley and diversify its concentration in Johor. Currently, Johor landbank remain the bread and butter for the company and represent more than 70% of total landbank.

• The JV company intends to undertake a mixed development project on the land with potential GDV of RM3bn. With the acquisition, UEM Sunrise has more than 10k acres of land remain undeveloped with potential GDV of RM85bn.

• YTD unrecognised revenue stood at RM4.1bn, representing 2.4x of UEMS’ FY14 revenue.

Risks

• Slowdown in Nusajaya sales; failure to achieve sales target; high-beta stock.

Forecasts

• Unchanged.

Rating

SELL

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

Negatives

• Concent rated in Johor; vulnerable to external slowdown;

Valuation

• Given the sector headwinds UEMS faces currently, we maintained SELL call. TP is unchanged at RM0.94 with an unchanged 70% discount of RNAV to reflect risk of Johor concentration.

Source: Hong Leong Investment Bank Research - 2 Dec 2015