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We initiate coverage on UEM Land Holdings (ULHB) with a BUY rating at a FV of
RM3.52 based on RNAV valuation. We like ULHB’s exposure to Iskandar Malaysia
and the potential earnings enhancement from acquiring Sunrise as we believe there
is untapped synergy and value accretion. Despite its rather premium valuation
against its peers, we believe the stock’s potential inclusion into the FBM KLCI and
positive news flow from Iskandar will give it the fillip for an upward rerating.
Largest pure property stock on Bursa. As ULHB is now the largest property stock on
Bursa Malaysia by market cap and landbank size, it is a strong candidate for inclusion as
an index component of the FBM KLCI, which is due for review in June. With its inclusion,
ULHB would be the only pure property stock in the index, which we believe will raise
ULHB’s profile and visibility, which would then clearly justify its premium valuation given
that the FBM KLCI’s top 30 stocks are typically used as a benchmark portfolio.
Untapped synergy and value accretion from Sunrise. Previously, due to the company’s
lack of experience in niche/lifestyle integrated residential and commercial developments,
the key concern of investors had been the execution risk. However, we believe the group’s
underlying execution risk has been reduced after its acquisition of Sunrise. Armed with its
vast experience and track record in this area, coupled with the involvement of Sunrise’s
major shareholder Datuk Tong Kooi Ong, Sunrise will be the key driving force in the
development of ULHB’s future projects.
Benefiting from warmer Malaysia-Singapore ties. Following the bilateral agreement
signed in May 2010, both governments agreed to move the KTM terminal station from
Tanjung Pagar to Woodlands in exchange for six parcels of land in Marina South and
Ophir-Rochor, which will be jointly developed by a 60:40 JV between Khazanah and
Temasek. With ULHB as Khazanah’s property arm, we believe it is very likely that ULHB
would be appointed as the key developer to undertake the project on behalf of Khazanah.
This will be a significant earnings catalyst for ULHB.
Initiate at a BUY. Our FV of RM3.52 is based on 1x RNAV on a fully diluted basis
assuming the full conversion of the company’s RCPS. With a more than 20% upside we
initiate coverage on ULHB with a BUY. Despite its premium valuation over its peers, we
believe that the stock’s potential inclusion in the FBM KLCI and positive news from
Iskandar will be its upward rerating catalysts. Due to its size and promising growth
prospects, ULHB’s liquidity is among the highest of all listed property stocks as foreign and
local institutional interest have picked up, especially following its acquisition of Sunrise.
FYE Dec (RMm) FY08 FY09 FY10 FY11f FY12f
Revenue 511.6 407.9 469.7 1,334.0 1,672.7
Net Profit 74.2 114.6 194.5 318.0 384.8
% chg y-o-y n.m. 54.5 69.7 63.5 21.0
Consensus 306.0 373.0
EPS (sen) 3.1 4.7 5.3 7.4 9.0
DPS (sen) 0.0 0.0 0.0 0.0 0.0
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
ROE (%) 5.9 8.3 9.2 8.9 8.1
ROA (%) 2.4 3.5 5.2 6.2 5.8
PER (x) 89.0 57.7 51.0 36.5 30.2
BV/share (RM) 0.51 0.63 0.74 1.14 1.28
P/BV (x) 5.3 4.3 3.7 2.4 2.1
EV/ EBITDA (x) 158.7 103.8 60.2 32.2 25.8
Notes: FY11 and F12 EPS are based on fully diluted basis.
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