News

• Proposed disposal of 163.9 acres (7.1m sqft) of freehold commercial lands in Iskandar Puteri, Johor Bahru to Country View Berhad for a total consideration of RM310.0m.
• The land lies along Lebuh Kota Iskandar, adjacent to Kota Iskandar interchange exit from Lebuhraya Sultan Iskandar due north-west and opposite Raffles American School, Iskandar Puteri, Johor.
• No planned development was previously announced on the piece of land and the disposal is expected to be completed by 3Q18.

Comments

• We are mildly positive on the news as there will be an estimated outright gain of circa RM250m to be realized based on a book value of approximately RM60m as at end of FY16.
• While the gain of RM250m may be significant as compared to a net profit of RM147m achieved in FY16, we deem it as a non-core in nature.
• The pricing works out to be RM43.4psf, which is fair as compared to the previous transacted price of RM40psf during the land exchange with KLK Berhad when forming the JV back in 2014.
• Note that there was no imputed GDV for the land. As our valuation has factored in RM40psf for the land value, the impact of disposal is negligible to our estimated RNAV.
• However, net gearing is expected to improve to 0.36x from current 0.41x post-disposal.
• The sale of land in Iskandar Puteri is in line with the group’s strategy as a master developer in Gerbang Nusajaya to unlock the land value and spur future growth. Post disposal, UEM Sunrise still owns about 6.4k acres of land within the Iskandar Puteri region.

Forecasts

• Unchanged.

Rating

HOLD ↔; TP: RM1.18 ↔

• Despite trading at a steep discount to its RNAV, we see lack of near term catalyst given the subdued sentiment for property outlook in Johor. High P/E and low dividend yield are among the downside for the stock.

Valuation

• Maintain HOLD call with unchanged TP of RM1.18 (based on unchanged 60% discount to RNAV of RM2.94).

Source: Hong Leong Investment Bank Research - 31 Oct 2017