UEM SUNRISE BHD

By HLIB Research Hold Target price: RM1.18

UEM Sunrise Bhd has proposed the disposal of 28.995 acres of freehold agricultural lands in Iskandar Puteri, Johor Baru, to Kimlun Corp Bhd for a total consideration of RM82.1mil.

The freehold land is located along Jalan Kampung Lalang, off Lebuh Kota Iskandar, near Horizon Hill, Eco Botanic, and Taman Nusa Sentral, within Iskandar Puteri.

No planned development was previously announced on the piece of land and the disposal is expected to be completed by the fourth quarter of 2018.

Hong Leong Investment Bank (HLIB) Research is mildly positive on the news as there will be an estimated outright gain of RM72mil to be realised based on a book value of RM11mil as at end financial year 2016 (FY16).

“The gain of RM72mil is significant as compared with a net profit of RM147mil achieved in FY16; we deem it as a non-core nevertheless.

“The pricing works out to be RM65 per sq ft, implying a higher valuation of 50% compared with the recent transacted price of RM43.40 per sq ft for the land disposal to Country View Bhd albeit this is a smaller parcel of land.

“Note that there was no imputed gross development value (GDV) for the land.

“As our valuation has factored in RM40 per sq ft for the land value, the impact of disposal is negligible to our estimated revalued net asset valuation (RNAV),” said HLIB Research.

However, the research house added that proforma net gearing is estimated to improve to 0.42 times post disposal from current 0.43 times.

The sale of land in Iskandar Puteri is in line with the group’s strategy as a master developer in Gerbang Nusajaya to unlock the land value and spur future growth. Currently, UEM Sunrise still owns about 6,400 acres of land within the Iskandar Puteri region.

Despite trading at a steep discount to its RNAV and more than 10% upside to HLIB Research’s target price, the research house sees lack of near term catalyst, given the subdued sentiment for property outlook in Johor.

High price-earnings ratio and low dividend yield are among the downsides for the stock.