• Maintain BUY and MYR1.60 TP, 65% upside. Our recent visit to UEM Sunrise’s project site at Gerbang Nusajaya reaffirms our bullish view on the company, while further land acquisition from Ascendas Land (Malaysia) at end 2022 is a sign of strong upcoming demand for industrial development. A new data centre and factories are undergoing construction. UEMS is also converting 361 acres of land into industrial zone for more immediate development, either via an outright sale or JV. Its 3,000 acres of undeveloped land in the area (including JV) is awaiting further re-rating.

• Nusajaya Tech Park (NTP, a 40:60 JV project between UEMS and Ascendas) is busy. Apart from other factories which are already operating, GDS Holdings, which is a leading developer and operator of data centres, is currently building its data centre campus at NTP. The renowned Paris Baguette (owned by SPC Group of South Korea) is also constructing its first global halal manufacturing plant in South-East Asia. Management indicated that demand for industrial development picked up rapidly during the US- China trade tensions, and post-COVID-19 reopening further accelerated the decentralisation of operations by many multinational corporations. This trend is in line with UEMS’ other industrial peers, such as AME Elite Consortium (AME MK, BUY, TP: MYR2.05), which has similarly experienced strong demand over these few years.

• Ascendas’ further land acquisition in the JV – a boost of confidence. Admittedly, development at NTP was fairly slow in the early stage, but it is now a highly successful industrial park. In Dec 2022, UEMS injected Phases 2 and 3 into the JV as Ascendas decided to expand further. Although the transaction was valued at MYR289.2m for 235 acres (the price was fixed based on certain escalation rate agreed earlier), Ascendas’ move to further expand NTP is a show of confidence. NTP is a green mark industrial park with high security system, and Ascendas, via its strong network and track record, has been able to bring in reputable industrial players into NTP. The factories at NTP are currently fetching MYR360-370 psf. Phase 1 of NTP is already almost full, while Phases 2 and 3 are currently undergoing land clearing.

• UEMS converting 361 acres into industrial zone. The revised masterplan of Gerbang Nusajaya saw industrial component making up 28.3% of total new GDV of MYR45bn, from only 1.6% of MYR42bn. The immediate conversion of the 361 acres could suggest that some proposals are already on the table, and we are hopeful that some deals may materialise in a few months.

• Maintain TP. Despite the lower sales target set by management for FY24, we remain confident on the prospects of Iskandar Malaysia and UEMS has the best landbank there to capture the growth opportunities that could provide earnings upside. Our TP is based on an unchanged 25% discount to RNAV, with a 2% ESG discount.

Source: RHB Research - 13 Mar 2024