News

• Proposed disposal of 28.995 acres (1.3m sqft) of freehold agricultural lands in Iskandar Puteri, Johor Bahru to Kimlun Corporation Berhad for a total consideration of RM82.1m.
• The freehold Land is located along Jalan Kampung Lalang, off Lebuh Kota Iskandar, near Horizon Hill, Eco Botanic and Taman Nusa Sentral, within Iskandar Puteri.
• No planned development was previously announced on the piece of land and the disposal is expected to be completed by 4Q18.

Comments

• We are mildly positive on the news as there will be an estimated outright gain of c.RM72m to be realized based on a book value of approximately RM11m as at end of FY16.
• The gain of RM72m is significant as compared to a net profit of RM147m achieved in FY16; we deem it as a non-core nevertheless.
• The pricing works out to be RM65.0psf, implying a higher valuation (+50%) compared to the recent transacted price of RM43.4psf for the land disposal to Country View Berhad albeit this is a smaller parcel of land.
• 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, proforma net gearing is estimated to improve to 0.42x post disposal from current's 0.43x.
• 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. Currently, UEM Sunrise still owns about 6.4k acres of land within the Iskandar Puteri region.

Risks

• Slower-than-expected sales; execution risks in 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 RM2.96).

Source: Hong Leong Investment Bank Research - 21 Dec 2017