News

• Proposed disposal of 4.9 acres (213.6k sqft) of freehold lands in Richmond, British Columbia, Canada to a company related to South Street Development Group, by its wholly-owned subsidiary, UEM Sunrise (CANADA) Alderbridge Ltd for a total consideration of CAD$113.0m (circa RM372.6m).

• The property was acquired back in April 2014 at a cost of CAD$70.2m (circa RM209.5m) with a planned GDV of CAD$516.9m or RM1.7bn. The deal is expected to be completed by 3Q17.

Comments

• We are positive on the news as the estimated outright gain of circa RM150m on the sale of land is higher than our previously imputed NPV of RM51m based on more conservative parameters. The book value of the subject land was CAD$72.0m (circa RM223m) as at end of FY15.

• The pricing works out to be CAD$529 psf, translating to a gain of circa 61% compared to the acquisition price of CAD$329 psf.

• While the proposed land sale will reduce our group effective total GDV by 0.6%, the incremental NPV of circa RM100m will increase our estimated RNAV per share by 0.7% or 2 sen per share.

• Furthermore, the estimated realized gain is immediate as compared to the uncertainty associated with initial planned mixed development that was expected to realize over the next 10 years.

• In line with the group’s strategy, the sale of land in Canada will enable UEMS to concentrate on the domestic market in Malaysia and international market in Australia.

Forecasts

• Unchanged.

Rating

HOLD ↔

• Despite trading at a steep discount to its RNAV, we see lack of near term catalyst with subdued sentiment for property outlook in Johor.

Valuation

• We maintain our HOLD call with a higher TP of RM1.18 by applying a lower discount of 60% to RNAV of RM2.95 following the increasing news flows on property landscape in Johor.

Source: Hong Leong Investment Bank Research - 14 Mar 2017