We attended UEMS-Ascendas Nusajaya Tech Park (NTP) ground-breaking ceremony which was graced by Malaysia’s MITI minister, YB Dato’ Sri Mustapa Mohamed, and Singapore’s Minister of Trade and Industry, Mr Lim Hng Kiang. This reaffirms our view of stronger bilateral relationships between the two countries. NTP will be setting new standards for industrial property development in Malaysia and is expected to draw 200 enterprises and 20,000 work-force population when the project is completed. We view the project positively as it is potentially a strong economic driver to build population mass in the area. The near-term prospects of Iskandar Malaysia will remain challenging and sentiment may remain weak, which has capped UEMS’ share price. However, UEMS is already trading at fresh historical high discount rate to its RNAV of 55% implying that a lot of bad news has been priced in. We reckon any positive news-flow out of Johor will result in a sharp re-rating in UEMS. Maintain OUTPERFORM and TP of RM2.60 based on 43% discount to its FD RNAV of RM4.56.

Nusajaya Tech Park (NTP) to set new standards for industrial properties in Malaysia. To recap, UEMS and Ascendas Pte Ltd entered into a 40:60 JV to develop 519 ac in Gerbang Nusajaya back in Oct-2012 and they will be buying the land progressively. The development period is 9 years. Upon completion of the whole project, we can expect some 200 enterprises and a workforce of 20,000 people. The industrial park is the first Malaysian tech park to be awarded Singapore’s Building & Construction Authority (BCA) Green Mark for Districts (Gold Award). It will be very similar to a well-organized township of industrial properties. The park is differentiated by abundant green lungs, environmentally friendly features with commercial content to cater to the community there. It will be targeting light to medium industries, with emphasis on precision engineering, electronics, light and clean manufacturing, and warehouse/logistics. We understand that Ascendas will assist buyers with the necessary approval process while the park will be managed by Ascendas to ensure that the ‘township’ is maintained well. Along with the strength of Ascendas branding as an industrial developer and its new concept, NTP’s pricing is at a premium of 10%-40% of its neighbours like Crescendo’s (OP; TP: RM3.15) Nusa Cemerlang Industrial Park and SiLC. Nonetheless, we believe that NTP’s neighbours will enjoy spill-over effects as there would be industrial buyers looking for cheaper options.

A catalytic development. The first tranche of NTP involves Phase 1, Plot A (120ac), out of which, 71ac has been identified as the start-up phase of Ready-Built Facilities (RBF) and land plots for Build-to-Suit (BTS) developments with GDV of RM800m. The group has done a ‘soft launch’ end of last year and has not been marketing extensively as they were waiting for land subdivisions approvals. So, out of 43 RBF available for sale, 40% has been ‘booked’. Going forward, the group will be marketing more extensively to other countries where Ascendas will tap onto its wide customer base. The strategy of NTP is to sell to end users rather than investors to ensure that the tech park is occupied once the entire development has been completed. During the ground-breaking ceremony, NTP signed MoUs with the following companies for the BTS developments; Sanwa Group of Companies for integrated logistics and supply chain, YCH Group for ICT and business process outsourcing service provider and VADS Bhd (wholly owned by TM) for a data centre.

We view this positively as it means more rapid economic drivers in the area, which is needed to draw population to the area. Building approvals should be obtained by end July-14 and we can expect signing of SPAs then. So far, earthworks are completed and completion of the start-up phase is expected in 2016.

Other updates. We also took the opportunity to visit Emerald Bay @ Puteri Harbour, a 60:40 JV project between Bandar Raya Developments (BRDB) and UEMS. Its Phase 1 has achieved take-up rate of >80% even with a hefty price tag of RM3.8-RM7m/unit for its luxury landed developments (refer overleaf). We find this extremely heartening as it reiterates the view that given the right product in the right location, property sales in Johor can still be brisk. The Edge also reported that Hong Kong’s Sino Group and its Singapore affiliated Far East is expected to sign a deal with UEMS to bring in the first Fullerton hospitality brand to Puteri Harbour. While management did not divulge details, we gather the discussions are real. We also view this positively as it demonstrates the long-term view that foreign investors are taking on Iskandar Malaysia. Investors can also expect to hear more news-flow from the FastTrack project @ Gerbang Nusajaya by 2H14.

Source: Kenanga