UEMS announced that it is disposing its 80.4%-owned South African property development firm for RM38m. The expected gains from the disposal is c.RM20m. Post-divestment of the firm and including the recent KL acquisition, the group’s net gearing will increase to 0.53x (from 0.5x as at 31 Mar 2022). We are positive on this development as we believe the disposal will allow the group to streamline its operations and focus its resources on developments where it has competence, visibility and presence. Maintain HOLD with an unchanged TP of RM0.30 based on a discount of 85% to our estimated RNAV of RM1.97.

NEWSBREAK

UEMS announced on 19 Aug (Fri) that it is disposing its 80.4%-owned South African property development firm, Roc-Union Proprietary Limited (Roc Union) to Olive Investment Trust for Rand 142.6m (or c.RM38m).

Background. To recap, in 1994, discussions were held between Malaysia’s then Prime Minister, Tun Dr Mahathir Mohamad and the then President of South Africa, President Mandela on possible collaborations between Malaysia and Africa. As a result, in 1998, UEMS’ subsidiary entered in to an agreement with a local South African company called Vulindlela Investment to form a JV named Roc-Union. The JV acquired a freehold land measuring 70.2 acres at the Point in Durban, South Africa. The role of the JV is both the landowner and the master developer of this project. The objective of the project was to create investment opportunities and project a new image for Durban as a modern world-class African city. Some of the developments under the project include residential developments, offices, retail, hotel and recreational spaces (see Figure #1). Currently, the remaining land bank for the project stands at 31 acres.

Details on the divestment. The disposal from UEMS is conditional upon the disposal of the remaining stake of 19.6% by its JV partner, to be completed within 30 days from 19 Aug 2022. The full settlement of the sales proceeds of RM38m is expected to be completed within 33 days from 19 Aug 2022, i.e. by 22 Sept 2022. Post divestment, UEMS will fully exit the South African market. The expected gains from the disposal is c.RM20m. Following this divestment as well as the group’s recent KL land acquisition on 4 Aug, the group’s net gearing will increase to 0.53x (from 0.5x as at 31 Mar 2022).

HLIB’s VIEW

We are positive on this development as we believe the South Africa development is too far and difficult to monitor for UEMS. The disposal will allow the group to streamline its operations and focus its resources on developments where it has competence, visibility and presence.

Forecast. Unchanged.

Maintain HOLD with an unchanged TP of RM0.30 based on a discount of 85% to our estimated RNAV of RM1.97. While we view the group’s recent corporate exercise, including this divestment as well as the recent KL land acquisition and Johor land disposal positively as the group is moving ahead to optimize its land and development portfolio for a more targeted and sustainable growth plan forward, nonetheless, we are still cautious on the group’s near term prospects given the weakening sales momentum after the end of HOC, the rise in construction cost and labour shortage condition. In addition, the group also has a large land bank exposure in Johor where the property outlook there remains weak.

Source: Hong Leong Investment Bank Research - 22 Aug 2022