Lagenda Announced a Land Acquisition From UEMS Measuring 431.1 Acres (18.8m Sq Ft) for a Total Cash Consideration of RM45.1m to Develop Affordable Township With Estimated GDV of RM985m. We Are Positive on the Transactions as on One Hand, It Can Provides Some Source of Working Capital for UEMS, While on the Other, Paves Way for Redevelopment or Better Usage of the Land Parcel for Lagenda. Maintain BUY on Lagenda With An Unchanged TP of RM2.01. Maintain HOLD on UEMS With Unchanged TP of RM0.49.

NEWSBREAK

Lagenda buys land from UEMS for RM45m. Lagenda Mersing Sdn. Bhd., a 70% subsidiary of Lagenda has entered into a conditional sales and purchase agreement with UEM Sunrise for the purchase of a parcel of freehold land in Mukim Mersing, Johor measuring 431.1 acres (18.8m sq ft) for a total cash consideration of RM45.1m. Lagenda intends to undertake an affordable township development, with estimated GDV of approximately RM985m.

Strategically located near Mersing Town. The land is located just 10 minutes away from Mersing town and strategically located within a mature residential development area with surrounding developments such as Taman Mersing, Taman Wawasan/ Bandar Baru Mersing and Taman Wawasan Indah. It is also within the vicinity of Plaza D’Jeti and easily accessible from Federal Route 3.

HLIB’s VIEW

Positive on acquisition. This acquisition will be Lagenda’s 6 th affordable housing township after its foray into Perak, Kedah and Pahang as it executes its plan towards being a nationwide affordable housing provider. We are positive on this land acquisition as Lagenda’s GDV is expected to increase by 17.9% to RM6.6bn. The implied land cost is RM2.40psf, which is only 4.6% of total GDV. We believe the acquisition price is a good deal as the purchase consideration represents a discount of c.36% to the asking price of the land of RM3.80psf as listed in PropertyGuru’s site (See Figure #4).

Undeveloped landbank by UEMS. We are also positive on the UEMS side to monetise this Mersing land as the land currently has no immediate development plans and subsequently will reduce UEMS’s undeveloped landbank by 13.7%. To recap, UEMS has 3.1k acres of undeveloped land and 7.9k acres of development land as of 1Q21, which brings its total landbank to 11k acres.

Gearing impact. Our pro forma calculation implies Lagenda’s net gearing will increase to 0.08x from 0.02x (as of 1Q21). Meanwhile, UEMS’s net gearing remains relatively unchanged at 0.48x as of 1Q21.

Maintain BUY on Lagenda with an unchanged TP of RM2.01 pending more details on the timeline of the development. Our TP is based on 20% discount on estimated RNAV of RM2.51 per share. We like Lagenda for its exposure to the underserved affordable housing segment, stable clientele base (public sector workers with government financing access), low land cost, high booking conversion rate and superior margins.

Maintain HOLD on UEMS with an unchanged TP of RM0.49 based on discount at 75% to our estimated RNAV of RM1.94. Despite trading at a steep discount to its RNAV and significant 24.1% upside to our TP, we see lack of near term catalyst for UEMS coupled with the hampered margins from ongoing discounts for its unsold units and the continuing losses from its Property Investment division.

Source: Hong Leong Investment Bank Research - 5 Jul 2021