News

• UEMS has announced an acquisition of 19.24 acres (838k sqft) of leasehold residential lands in Taman Equine, Seri Kembangan, Selangor for RM109.5m.

• The land is located in less than 20km south from Kuala Lumpur city centre and is easily accessible via major expressway such as MEX, LDP and SKVE.

• The development order has been approved for 924 residential units with an estimated GDV of over RM700m. Targeted to launch in 2019.

Financial Impact

• The implied land cost is circa RM131 psf and 15.6% of the estimated GDV of RM700m, comparable to the land price surrounding the area.

• It is expected to increase the group’s effective GDV marginally by 0.6%. Assuming an EBIT margin of 14%, the project’s NPV is estimated at RM30m or RNAV of 1 sen per share.

Pros/Cons

• We are neutral on the land acquisition as the incremental impact is negligible with 0.2% to increase to our estimated RNAV.

• The land is located in a mature and established neighbourhood with major amenities such as shopping malls (AEON Taman Equine), school (Alice Smith International School) and MRT (MRT2 Equine Park) within 3km radius.

• We understand that the product offering would be targeting upper-mid market purchasers given the prime location of the land. Given UEMS' experience and track record in the product segment, we believe the project should garner strong interest.

Risks

• Slower-than-expected sales; execution risks for projects.

Forecasts

• Unchanged.

Rating

HOLD ↔ ; TP: RM1.18 ↔

• Despite trading at a steep discount to its RNAV and more than 10% upside to our TP, 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 downsides for the stock.

Valuation

• Maintain HOLD call with unchanged TP of RM1.18 (based on unchanged 60% discount to RNAV of RM2.95).

Source: Hong Leong Investment Bank Research - 13 Dec 2017