UEMS announced the disposal of 72 freehold industrial plots in Southern Industrial and Logistics Clusters (SiLC) 3 to AME Consortium. The land amounts up to 169.8 acres (7.4m sqft) and will be sold for a consideration of RM434.3m (RM58.7 psf). We are positive on the news as this hastens the monetisation process of the industrial park as oppo sed to selling individual land plots, despite the latter possibly garnering higher prices. In a separate announcement, MD/CEO Mr Anwar Syahrin has given his notice of resignation on Oct 9. We maintain our forecasts and HOLD call with an unchanged TP of RM0.42 based on an 80% discount to our estimated RNAV of RM2.11.

NEWSBREAK

UEMS announced it has entered into two Heads of Agreement for the disposal of 72 freehold industrial plots in Southern Industrial and Logistics Clusters (SiLC) 3 to AME Consortium. The land amounts up to 169.8 acres (7.4m sqft) and will be sold for a consideration of RM434.3m (RM58.7 psf).

HLIB’s VIEW

Positive on the news. We are positive on the news as this hastens the monetisation process of the industrial park as opposed to selling individual land plots, despite the latter possibly garnering higher prices. The margins from the disposal are not disclosed at the moment and may not be comparable to the previous land sales from SiLC 1 & 2 given the differences in infrastructures provided in SiLC 3. To recap, SiLC 1 & 2 were sold at c.RM37 psf over 6 years ago. For illustrative purposes only, assuming a 50% margin, our pro-forma calculation implies that net gearing would ease to 0.33x (from 0.4x as of 2QFY20).

The last of SiLC land. Upon completion, UEMS will have completed its monetisation of the entire SiLC land. For the uninitiated, SiLC is a 1.3k acre freehold industrial land located north west of Iskandar Puteri and is the only full-fledged managed freehold business park in Iskandar Puteri.

The structure. The payment schedule and earnings recognition for of the disposals have yet to be determined, with it possibly being recognised progressively as opposed to a lump sum. Note that earnings recognition is generally recognised upon the handover of VP. The timeline for the handover has yet to be determined given the number of industrial plots involved and approvals required to release Bumiputera restrictions on 34 of the aforementioned lots.

In a separate announcement, MD/CEO Mr Anwar Syahrin has given his notice of resignation on Oct 9. This came to us as a surprise given that the Board of UEMS is in the midst of deliberating on the potential merger with Eco World Development Group. To recap, the Board will be submitting their response on the matter latest by 30 Oct.

Forecast. Unchanged pending further information on the margins and recognition.

Maintain HOLD with an unchanged TP of RM0.42 based on an unchanged discount at 80% to our estimated RNAV of RM2.11 as we take a conservative stance by lowering the realisable value of land bank held for potential sale given the subdued market. Despite positive longer-term prospects from increased land bank exposure in the central region and a potentially leaner workforce when combi ned as an entity, our HOLD call is premised upon near-term hiccups to be faced by the company, i.e. wider net gearing and workforce culture assimilation.

Source: Hong Leong Investment Bank Research - 12 Oct 2020