Journey to Wealth

UEM Land Holdings - OUTPERFORM - 12 JUNE 2012

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Publish date: Wed, 13 Jun 2012, 03:06 PM
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News   UEMLAND has proposed to undertake the development of a high-end residential resort and surrounding 2 golf courses on Desaru, Johor via its 51% owned subsidiary, Dev Co; the remaining 49% is owned by Desaru Development Corporation S/B (DDC), which is a subsidiary of its major shareholder and Malaysia's sovereign fund, Khazanah Nasional. The land spans 678.7ac with a purchase consideration of RM485.3m, which is close to its appraised value of RM485.7m.
  
Comments   Progressive land payment over 5.5 years will help ease cash flow constraints. UEMLAND will provide shareholders advances to the Dev Co (RM97.1m) or 20% of the land payment for the first 18 months. We expect FY12-13E net gearing to increase from current 0.14x to 0.15x each, which is still within our comfort zone of <0.5x. (Refer overleaf for details). 

 GDV of RM5.4b will be a coastal development offering an integrated high-end resort lifestyle to tap onto the PETRONAS RAPID O&G play. Developments will likely kick off end FY13 and span 20 years. 

 Long term positive. Land comparatives are tough to ascertain as the said land is readily to be developed while there aren't many available transaction data.There are less than a handful of developers with major landbanks in the greenfield area of Desaru. We consider fair pricing since land cost only makes up 9% of GDV.
  
Outlook  Developments will likely kick off 4Q13 and spans 20 years. Meanwhile, we look forward to potential en bloc sales, new launches and Nusajaya land sales in 2H12.
  
Forecast  Maintain FY12-13E earnings since impact from the return on shareholders advances and increased gearing is immaterial (<1%).
  
Rating Maintain OUTPERFORM
 Beneficiary of the burgeoning demand of properties in Iskandar Malaysia, with 2011 tipping point as catalysts with spill-over impact from Singapore.
  
Valuation   FD SoP RNAV increases marginally by 2.0 sen to RM3.28 given its long gestation impact on DCF of future earnings. 

 No changes to TP of RM2.65 based on 19%* discount to FD SoP RNAV of RM3.28.
  
Risks  Unable to meet sales target. The up-cycle of Singapore's property sector. Sector risks, including negative policies.


Source: Kenanga
UEMS (5148)
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