Our view on RNAV re-rating is reinforced. Land values are set to rise further, given the participation of branded developers at Puteri Harbour, and the expected transaction price at SiLC Phase 3. The announcement of the partnership for the development of Gateway District at Gerbang Nusajaya could be the next share price catalyst. We maintain our Trading Buy rating with an unchanged fair value of MYR3.30.

¨      Good turnout for ULHB. Mr. Siew Chee Seng (Senior GM, Finance), En. Azmy Mahbot (GM, Corporate Planning) and Cik Masleena Hafiza (Deputy Senior Manager, Corporate Planning) were the representatives from ULHB. All three meeting sessions were well taken up. Almost 30 fund managers and analysts attended the small group meetings.

¨      Land sales to branded developers will bring up value of Nusajaya. There are still some parcels of land at Puteri Harbour which ULHB may develop or dispose of. Management emphasised that they are selective on buyers. Successful buyers are chosen based on their track record, products and brand name that can create value to Puteri Harbour. Latest transacted price by Kuok Brothers has hit MYR333 psf.

¨      SiLC land will go for MYR50 psf. Phase 1, 2A, 2B and 2C measuring 550 acres were fully sold to local and foreign companies. ULHB is now left with 200-acre parcel at Phase 3, which is expected to be put into the market next year, when land values rise further. Phase 3 is the most strategic parcel, located along the second link highway, near to the Pulai Interchange. ULHB is looking to price the land plots at MYR50 psf, compared to the last transacted price of MYR36 psf at Phase 2 in 2012.

¨      One more shot for Gerbang Nusajaya. Developments at Gerbang Nusajaya are mainly focused on creating job opportunities and expanding working population. Management is currently in talks with a reputable company in the region to jointly undertake the development of the Gateway District. It is planned for office campus/business park developments, which properties will then be leased out to the SMEs at cheap rental rates. This could be the next catalyst for share price.

¨      Maintain Trading Buy. We maintain our fair value of MYR3.30, based on 15% premium to RNAV. Developments at Iskandar are set to continue even if there could be a temporary hiccup due to election results. Any selldown will be a buying opportunity.

Expect More From Gerbang Nusajaya

Highlights from RHB Asean Corporate Day

Mr. Siew Chee Seng (Senior GM, Finance), En. Azmy Mahbot (GM, Corporate Planning), Cik Masleena Hafiza (Deputy Senior Manager, Corporate Planning), En Azlan Shah Abdullah Rahman and Cik Emilia Fatisya Zulkifly (both from Corporate Planning) were the representatives from ULHB. Updates from the management have highlighted the significant progress that Nusajaya has achieved, including both property development as well as land transactions.

Branded developers will bring up the value of Nusajaya. Some questions were raised by clients during the meetings to try to understand the management rationale of land disposal at Puteri Harbour vis-à-vis undertaking the development on its own. It was emphasised that selection on buyers is critical, as management would want to ensure that the value of the entire Nusajaya will appreciate in future. Therefore, ULHB will typically screen through candidates based on their track record, products, brand name and reputation in the industry before entering into a transaction. There are still a few parcels of land at Puteri Harbour which ULHB could sell to third parties or use for its own developments. To recall, Kuok Brothers recently entered into a 70:30 JV with Khazanah to acquire a 12.5-acre piece of land at Puteri Harbour at a record price of MYR333 psf. The participations of many high profile individuals and corporates are important to boost confidence. We expect land prices to continue to be held up as developments at Iskandar progress. Some pictures were shown to update investors on the construction progress of Somerset serviced apartments, Family Theme Park, Traders Hotel and the Public Marina and Clubhouse.

SiLC land will go for at least MYR50 psf. Phase 1, 2A, 2B and 2C measuring 550 acres were fully sold to local and foreign companies since 2007. Starting from MYR18 psf in 2007, the last transacted price at Phase 2 has already achieved MYR36 psf in 2012. ULHB is now left with 200-acre parcel at Phase 3, which is expected to be put into the market next year, when land values rise further. Earth works will be kicked off in 2H12. Phase 3 is the most strategic parcel, located along the second link highway, near to the Pulai Interchange. As such, ULHB is looking to price the land plots at MYR50 psf. Meanwhile, Ascendas is expected to commence its works in 2H13. Development plans have already been submitted. Given Ascendas’ brand name and its industrial developments in Singapore, we are confident in its ability in attracting the interests of the Singapore corporates and SMEs. 

The Gateway District – the next share price catalyst. Management reiterated that developments at Gerbang Nusajaya are mainly focused on creating job opportunities, business activities and expanding working population. Thus far, key developments on Gerbang Nusajaya have already been announced. Apart from the Ascendas’ 519-acre integrated tech park, others include the JV with FasTrack (a company linked to a Singapore tycoon Peter Lim) to develop a Motorsports City, and MOU with Chinamall Holdings Pte Ltd to develop a China Mall, phase 1 of Gerbang’s Asian Trade Centre on 32 acres of land with a GFA of about 1.4m sqf. Some 3,000 merchants from China are expected to occupy the first phase. In the pipeline, we gather that the management is currently in talks with a reputable company in the region to jointly undertake the development of the Gateway District. The 150-acre Gateway District is strategically located along the second link highway, the closest point to the CIQ complex. It is planned for office campus/business park developments, which will then be leased out to the SMEs at cheap rental rates for 10-15 year tenure. When critical mass is achieved in future, these parcels of land could be redeveloped by adding higher value-added properties. The announcement could be the next catalyst for ULHB’s share price.

MYR3bn sales target unchanged. ULHB’s 2013 sales target of MYR3bn is on track. The company plans to roll out MYR4bn worth of projects this year, out of which MYR3bn is within Nusajaya and MYR1bn is outside Nusajaya. We estimate that 1Q13 sales have achieved about MYR1bn, largely coming from the successful sales at Teega, which has seen a take-up rate of 82%. We expect this to rise further given that Imperia and Somerset have hit 96% and 100%. All these projects are located at Puteri Harbour. Response for East Ledang and Horizon Hills is always strong. Thus far, take-up rate for East Ledang is about 80% and it is almost 100% for Horizon Hills. The demand has spilt over to the developments nearby at Nusa Idaman and Nusa Bayu, which are segmented at the mid-end housing. Linked houses at Nusa Idaman are now already going at MYR650k each. The latest take-up rate for these two townships has reached 78% and 72%, respectively.

ULHB still has an outstanding landbank of 11,011 acres, and only 6,484 acres of the total are committed for various projects, carrying MYR41.6bn worth of GDV. The contribution to revenue has already been taken over by the projects in Nusajaya. In 2012, turnover from Nusajaya accounted for 54% of the total revenue, compared to 44% in the previous year.

Valuations
Our earnings forecasts are at the higher end of consensus. Given the strong sales in 1Q, we believe the unbilled sales will be replenished further from MYR2.28bn as at 4Q12. The earnings growth will therefore gradually compress the stock’s PE
valuations. We maintain our Trading Buy rating with an unchanged fair value of MYR3.30, at 15% premium to RNAV. Although ULHB is a GLC-linked developer, given the milestone achieved and cross-border agreements entered, the Iskandar corridor is too big to fail. Developments will resume after some temporary hiccup arising from the election outcome (if any). We therefore view any selldown as a buying opportunity.

Source: RHB