UEMS has proposed to acquire a 6.4-acre land along Jalan Semarak, KL for RM384m (RM1,380psf) to be paid in cash (RM235.8m) and in kind (land in Johor worth RM148.3m). This land is earmarked for a mixed development with a GDV of RM1.5b to be launched by 2024. We feel that the pricing is on the high side in terms of land cost/GDV ratio as well as in comparison to recent transactions around the vicinity. We maintain our forecasts but lower our TP to RM0.32 (from RM0.40), having rationalised our valuation method to RNAV from PBV. Downgrade to MARKET PERFORM from Outperform as upside is now capped.

New KL land in exchange for cash and Johor lands. UEMS announced that they will be acquiring a 6.4-acre freehold land located along Jalan Semarak for RM384m (or RM1380psf). This purchase will be satisfied with cash (RM235.8m) and lands located in Nusajaya Techpark, Johor (RM148.3m for 107.8acres). This 6.4-acre land in Jalan Semarak has a plot ratio of 7.38x earmarked for a mixed development. UEMS intends to launch this development by 2024 with a tentative GDV of RM1.5b.

Pricy acquisition. We find this land purchase expensive from a (i) land cost/GDV ratio perspective and (ii) by comparing recent transactions around the vicinity.

With only RM1.5b of GDV, the land cost to GDV is considerably high at 25.6% vs typical land/GDV transactions of c.15%. In addition, based on our calculations (refer overleaf), we find the RM1.5b GDV projected by UEMS relatively high.

At RM1,380psf, the price tag is significantly higher than MRCB’s Semarak City land valuation of RM226psf appraised by Raine and Horne in Aug 2017. MRCB’s Semarak City Land (27.5 acres) is located just a kilometre north from this newly acquired land. Despite MRCB’s land being leasehold and appraised five years ago, we find it difficult to reconcile the price difference. Similarly, smaller land transactions in the area fetched prices of under RM500psf.

Post-acquisition, UEMS’s net gearing is expected to rise from 0.50x (as of 1Q22) to 0.54x. Overall, we are less than upbeat over the latest land acquisition given the seemingly steep pricing.

We maintain our forecasts but lower our TP to RM0.32 (from RM0.40), having rationalised our valuation method to RNAV (80% discount) from PBV (0.3x FY22E). Our 80% discount is steeper against peers’ 60-65% as: (i) we expect UEMS to remain loss making amidst the increasing challenging property landscape and (ii) their land banks are largely located in the Southern region which could take a long time to monetize. There is no adjustment to our TP based on ESG which we accord a 3-star ESG rating to UEMS. Downgrade to MARKET PERFORM from Outperform as upside is now capped.

*CNP excludes unrealized FOREX losses/gains, gain/loss on disposal of non-property assets, FV adjustments, inventory impairments,

Source: Kenanga Research - 5 Aug 2022