• Upgrade to BUY from Neutral, with new TP of MYR0.70 from MYR0.28, 93% upside. The Iskandar property market should stage a recovery and UEM Sunrise, being a major landowner there among listed players, we believe it will be the prime beneficiary. While the 36%-completed Johor Bahru-Singapore Rapid Transit System (RTS) already provides visibility on growth prospects, the recent revival of the KL-Singapore high speed rail (HSR) project should present an additional boost given the company’s vast landbank at Gerbang Nusajaya. The stock is now a sector Top Pick.

• Proxy for Iskandar property market recovery. Having 7,877 acres of land in Johor (representing 92% of its landbank portfolio), we view UEMS as the best proxy for the recovery of Iskandar property market. During our reccent visit to Johor, the property market is becoming more vibrant, especially in the areas surrounding the RTS station at Bukit Chagar. We learnt that some projects are seeing prices rising by as much as 50% from the time of launch to vacant possession, and some newly launched projects are going at MYR1,000-1,200 psf, and they are well taken up.

• Revival of KL-Singapore HSR is another boost. The revival of the HSR project will help to boost market sentiment over the near term, and spur development of smaller towns within the Johor state over the longer term (depending on the location of stations under the new plan). The length of the HSR will be about 350km, and slightly more than half of the HSR alignment will be landed in Johor state. Recall, under the previous proposal, Pagoh/Muar, Batu Pahat and Iskandar Puteri were the locations that will have a HSR station. If the Iskandar Puteri station is maintained (which we believe it should as the connection to Jurong East will help to spur economic growth in Gerbang Nusajaya and Jurong areas), UEMS will stand to benefit given its 2,461 acres of land at Gerbang Nusajaya.

• Iskandar Malaysia may benefit if MM2H requirements are improved. Including other stakeholders, the Sultan of Johor Sultan Ibrahim Sultan Iskandar has also recently called to enhance the Malaysia My Second Home (MM2H) programme in terms of policies, incentives and benefits. We believe the revised guidelines will be announced in 2H this year, and the Iskandar Malaysia region will be one of the geographical areas in West Malaysia that can capture more foreign property purchasers given its proximity to Singapore.

• Higher TP. Our valuation is now based on 65% discount to RNAV (from 85%), and 2% ESG discount given our ESG score of 2.90 for the company. While the revision in our TP seems to be material, we highlight that this was the valuation level in 2015-2018 (after the HSR was announced) and before the change of government after the 14th General Election.

Source: RHB Research - 17 Jul 2023