UEM Land Holdings Berhad
Price (11 June 12) RM1.96
Target Price RM2.22
Expanding to the East Coast of Johor
Joint Venture development in Desaru: UEM Land Holdings Berhad (UEM) will undertake a joint venture project with 2 subsidiaries of Khazanah Nasional Berhad via a 51% owned subsidiary. The joint venture partners are subsidiaries of Desaru Development Holdings One Sdn Bhd (DDC), a subsidiary of Khazanah Nasional Berhad which is involved in the planning, development, construction and management of Desaru Coast as a destination resort, consisting of hotels, resorts, residences, retail, golf courses and clubhouses and including undertaking the business of township management at Desaru Coast
A high-end development: The new development comprises of 679 acres of land and purchase consideration of the land is about RM485.3m. The purchase consideration will be paid in tranches within 66 months. The development land is interwoven with 2 proposed golf courses to be developed by the joint venture company of UEM. The development is positioned as an exclusive high-end residential resort development. Future development includes bungalows, semidetached houses, link houses, townhouses and service apartments/ condominiums as well as a beach club for future residents of the Proposed Development. The beach club sits on a 3.76 acres land. The joint venture company will also manage the beach club upon completion.
Project to commence from FY13: The project is expected to commence in FY13 with project lifespan of 20 years. Nevertheless, we expect the earnings contribution to kick in from FY14 onwards as the project is a greenfield development whereby the joint venture company is expected to apply for the alienation of title and commencement of basic infrastructure development. As joint venture partner, apart from development profit, UEM will earn additional profit by providing project and development management services at a rate of 2.5% based on the total development costs for the project as well as marketing and sales services at the rate of 1.5% based on the sales revenue.
Valuation: The joint venture project will diversify UEM’s presence in Johor which is primarily focused in the Nusajaya area. Desaru has been earmarked as the leisure and tourism region for Johor. Despite being located at the east coast of Johor, it is accessible from the Johor Bahru City Centre via the Senai- Desaru Expressway. It is also accessible via sea from the Changi Ferry Terminal in Singapore to Tanjung Belungkor or Tanjung Pengelih in Johor, followed by road transportation. We are maintaining our forecasts at current juncture as we expect minimal earnings contribution to kick in from FY14 onwards. We are maintaining our NEUTRAL recommendation for UEM with a target price of RM2.22. The PER of 28X is 1.25 standard deviation below its 2-year average PER.