Friday, June 15, 2012

UEM Land: Iskandar Malaysia taking off (CIMB)

UEM Land
Current RM1.96
Target RM2.56
Iskandar Malaysia taking off

At our Asean Conference yesterday, UEM Land reiterated its view that Iskandar Malaysia will reach a tipping point this year. It gave us a peek at its newest exciting mega project in Nusajaya and explained how the newly acquired Desaru land fits into the wider picture.

UEM Land remains the best proxy for Iskandar Malaysia, which is showing signs of truly taking off this year. We make no changes to our Trading Buy call or target price basis of 5% discount to RNAV. The stock is not an outperform due to election risks for property stocks. Potential rerating catalysts include positive newsflow on Nusajaya and strong 2H12 sales.

What Happened
At the first day of the CIMB Asean Conference 2012, UEM Land presented to audience of around 40. It was represented by CEO Dato’ Wan Abdullah Wan Ibrahim, Director, Finance and Corporate Planning Mohd Zakir Omar and Deputy Senior Manager, Corporate Planning Masleena Hafiza Mahidi. As usual, Dato’ Wan gave an enthusiastic and comprehensive rundown of the group’s projects and prospects. Management also touched on the rationale for acquiring 679 acres of land in Desaru, Johor and how its acquisition strategy ties in with the newly stated dividend policy of 20-40% payout ratio.

What We Think
We were pleasantly surprised by the company’s readiness and openness in explaining its newest major catalyst in Nusajaya, the 4,500-acre Gerbang Nusajaya or “Gateway to Nusajaya.” We were also reassured that the acquisition of the Desaru land ties in nicely with the wider development of Iskandar Malaysia and that the acquisition price can be considered very reasonable. Lastly, the recently announced dividend policy is another positive and would put UEM Land closer to its peers in terms of yield.

What You Should Do
Investors should continue to accumulate UEM Land. The company is the best play on Iskandar Malaysia as it has close to 8,000 acres of undeveloped landbank in Nusajaya alone, which lies in the heart of Iskandar Malaysia. Iskandar Malaysia is expected to reach a tipping point this year due to the completion of major catalyst projects including a new highway from Nusajaya to Johor Bahru, two new theme parks and seven new educational institutions.

Gerbang Nusajaya
Previously called Nusajaya West, Gerbang Nusajaya is the first development that those driving from Singapore via the second crossing will pass through after customs and immigration. The project is conservatively estimated to have a GDV of RM18bn. Dato’ Wan believes that Gerbang Nusajaya could rival, if not, exceed UEM Land’s current flagship Puteri Harbour in terms of potential. The key strategy behind Gerbang Nusajaya is to attract Singaporeans and create jobs. This will accelerate the development of the entire Nusajaya township and will create demand for a wide range of services, goods and most importantly, property.

The masterplan for Nusajaya is undertaken by a Singapore-based company and the focus is on activity-based retail. An AutoCity test track and Asian Trade Centre – China Mall will be built. The idea is to leverage the abundance of cheap land in Nusajaya to provide retail elements not found in land-scarce Singapore. Another key component is the building and leasing of office and industrial space at very attractive rates of around S$1 psf/month to Singaporean companies. UEM Land will embark on this project with a joint venture partner. In the coming months, UEM Land will publicly introduce this new mega project and explain the concept to drum up interest.

We view Gerbang Nusajaya positively as UEM Land has thousands of acres of idle land in Nusajaya and it is a good way to put its assets to work. Conceptually, it makes sense as it taps into a resource that Singapore sorely lacks and Johor has in abundance. Although details of financing, costs and timing are still lacking, it is another catalyst project that could attract more investment into Nusajaya and Iskandar Malaysia as well as a new source of income to drive earnings higher.

New joint venture in Desaru
On Mon, UEM Land announced the proposed acquisition of a 51% stake in 678.7 acres of leasehold land in Desaru, Johor, from its parent Khazanah for RM247.5m, which effectively values the land at RM485.3m or RM16.40 psf. The acquisition price is a shade below the independent valuer’s estimated value of RM485.7m and payment for the land will be staggered over 66 months. UEM Land will provide development management services to the 51:49 JV between it and Khazanah at a rate of 2.5% of total development cost and marketing and sales service at a rate of 1.5% of revenue.

The Desaru landbank is located in the Desaru coastal area in the eastern part of Johor and is accessible via the 27km Senai-Desaru Expressway which was completed in mid-2011. It is also accessible via sea from the Changi ferry terminal in Singapore. There are ongoing plans to develop Desaru into a world-class resort tourism destination comprising golf courses, retail village, convention centre and themed attractions. GDV of the 679-acre project is estimated at RM5.4bn. Development of the 20-year project will start next year.

It was explained to us that the land that UEM Land is acquiring is located next to two major golf courses that will be constructed by Khazanah. UEM Land will develop residential properties priced at a fraction of other 6-star resort developments in the vicinity. The 679 acres are merely one portion of the 6,000 acres that Khazanah owns in the Desaru area. Other portions will be developed by internationally renowned resort companies. A water theme park covering 40 acres will also be built. The Desaru project makes sense as it is a catalyst project in Iskandar Malaysia that will add breadth to the product and entertainment offerings of the region.

New dividend policy
UEM Land is comfortable with its gearing level which is one of the lowest in the property sector. Nonetheless, it plans to raise debt for its landbanking and capex requirements. But it intends to keep its debt to equity ratio below 0.5x. In line with the practice of other leading developers, UEM Land has adopted a 20-40% payout ratio. This means that the company could pay out 2-3.5 sen in net dividend, which is higher than our 0.75 sen forecast. This implies a net yield of 1-2%, which, though still lower than the 3% average of its peers, is a marked improvement on the absence of dividends for many years.

Valuation & recommendation
We are more convinced of the potential and likely success of Nusajaya and Iskandar Malaysia after hearing details of UEM Land’s upcoming mega projects there. Another catalyst less well known is the 600 acres of open space that UEM Land owns in Nusajaya which it plans to develop into a major park. UEM Land’s original blank canvas of 24,000 acres in Nusajaya is finally reaching a tipping point. Recent strong sales (85% take-up for Imperia and close to 100% for Somerset Puteri Harbour) attest to the attraction of the township. UEM Land remains investors’ best play on Iskandar Malaysia. We maintain a Trading Buy on the stock. Potential rerating catalysts include positive newsflow on Iskandar Malaysia and strong sales for the aggressive launch schedule in 2H12.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 14/06/12

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