• Maintain BUY, with new TP of MYR1.60 from MYR1.18, 50% upside. The strong response for the submission of Kuala Lumpur-Singapore High Speed Rail (HSR) proposals could indicate that various funding proposals are being offered for the government’s consideration, and as such, cost competitiveness will be the key determinant. If the Light Rail Transit (LRT) and HSR projects proceed, the growth in human traffic and population should gradually transform Iskandar Malaysia into another important metropolis. UEM Sunrise is the best proxy for this multi-year growth story.

• RTS, and potentially LRT and HSR? We think all these rail transit systems are necessary to make the Johor-Singapore Special Economic Zone more compelling. Assuming the LRT and HSR projects are implemented, southern Johor will become a major city that could be comparable to the Klang Valley in the longer run. It was reported that the proposed three LRT lines, and respective terminal stations may be located at Ikea Tebrau, Iskandar Puteri area (either Legoland or Forest City) and Senai. In addition, the HSR may have a station at either Iskandar Puteri or Forest City. Regardless of the exact location, we think the Tuas Link area will see more growth opportunities given the concentration of the new transport system whereas the area in the Johor central region is already relatively more saturated. UEMS’ 2,334-acre land in Gerbang Nusajaya is now more valuable. Assuming MYR30 psf, this land is worth MYR3bn. The company still has 5,200 acres of land (some via JV) in other parts of Johor, including 2,500 acres in Kulai.

• HSR – the next major re-rating catalyst. The HSR project is expected to further boost sentiment on the property sector as a whole because it should spur demand for properties in Iskandar Malaysia and KL city centre, as well as areas surrounding the HSR stations along the alignment. HSR will be a major catalyst to increase southbound human traffic, not only from the population between Malaysia and Singapore, but also international travellers due to the potential connectivity between KLIA and Changi airport. Note that Johor will see the longest HSR alignment as more than half of the track will go through the state. UEMS is the prime beneficiary as the last HSR station in Malaysia may be located at Iskandar Puteri (which was the location under the previous proposal).

• Foreign shareholding is still low. Despite the run-up in share price, UEMS’ foreign shareholding is still at <6% (as at Dec 2023), compared to its peak of 22% in Apr 2013. Our new TP is based on a 25% discount to RNAV (from 45%) as well as 2% ESG discount. The stock is currently trading at a 51% discount to RNAV. Note that it used to trade at a 40-50% premium to RNAV at the peak of the previous upcycle in 2013.

Source: RHB Research - 26 Jan 2024