UEM Land is our 2Q13 Top Pick, post GE, as we upgrade UEMLAND to OUTPERFORM and a higher TP of RM3.25 (MP; RM2.40 previously) based on narrower discount of 9%* on our FD RNAV of RM3.57. In our opinion, UEM Land is the best Iskandar Malaysia (IM) news flow proxy and will likely benefit from valuations catchup upon listing of Iskandar Waterfront Holdings (IWH). It also has the highest Johor exposure amongst developers in our coverage. In line with our House strategy, there is a good possibility that high-beta developers will outperform the market after GE. We recommend accumulation during the GE period (refer overleaf for floor prices) for better entry levels - stock rebounds to pre-GE levels could be as fast as a week. Our FY13E earnings of RM534m (+19% YoY) assumes FY13E sales target of RM3.0b (+22% YoY) on the back on RM4.0b new launches. Unbilled sales of RM2.3b provide >1 year visibility.

A clear proxy to IM. Last year the group secured JV developments with Ascendas (GDV: RM3.7b) to develop an industrial park and Fastrack Autosports Pte Ltd to develop Motorsport City (GDV; RM3.5b) in Gerbang Nusajaya. They also entered into a MoU with Chinamall Holdings Pte Ltd to co-develop “China Mall” which is a trade and exhibition center in Gerbang Nusajaya and is in a collaborative agreement with TM to turn Nusajaya into a Smart City. We hope to see conclusion of these deals within the year, along with other FDIs since Gerbang Nusajaya spans 4,500ac. UEMLAND projects will also benefit from the entry of foreign developers (e.g. IWH JV with CapitaLand, Country Garden acquisition of Danga Bay land, TemasekKhazanah-E&O Wellness Center), which bodes well for capital values in Johor and spurring demand. Among listed developers of >RM1b market cap, UEM Land has the highest exposure to Iskandar (66% of respective total GDV), followed by Sunway Berhad (60%) and Dijaya Corp (50%).

IWH listing is likely to boost UEM Land valuations. IWH or Iskandar Waterfront Holdings S/B will likely be listed as a master developer for the redevelopment of Johor City Center (Flagship A) as it owns landbank size of c. 4,200ac with an estimated GDV of RM80b, including the prime waterfront area of Danga Bay (est. GDV RM60b), JV City Center and Desaru. We do expect IWH valuations to be steeper than UEMLAND’s Fwd PER of 20x since the indicative total GDV of IWH of RM80b is larger than UEMLAND’s current total GDV of c. RM50b (assuming similar debt-equity ratio). We understand IWH has more ‘coastal’ line landbanks (Desaru/Pengerang, Danga Bay) which typically carries higher plot ratios and land values. If IWH is listed at premium valuations, we can expect UEM Land to play valuation catch-up. We also observed that UEMLAND’s RNAV is severely understated and will review our RNAV in the near future, pending our upcoming company visit; there is c. 4,500ac which has no committed projects as yet and we also observed that their GDV assumptions are extremely conservative compared to other developers.

Foreign shareholding is up! Despite increasing GE uncertainties, the stock has fared well as its foreign shareholding has increased to 19% from mid teens, with YTD returns of 28% vs. -1% for the FBMKLCI and 12% for the KLPRP index; this does indicate that investors believe that IM is too big to fail and thus, the potential upside bias for UEMLAND remains post GE.

Source: Kenanga