MIDF Research has a muted response to UEM Sunrise’s RM384 million freehold land acquisition via its indirect wholly-owned subsidiary, Lucky Bright Start Snd Bhd from Nipponkey Sdn Bhd.
The land measures approximately 25,854 square metres or 6.39 acres is expected to be completed in 2HCY23 and seen as a rebalancing of landbank portfolio for UEM. The total purchase consideration of RM384m is said to be satisfied in cash of RM235.8m and in-kind of RM148.2m. As part of the settlement of the purchase price via in-kind consideration, Nipponkey has entered into the disposal and land transfer agreements with UEMS for land parcels totaling a net area of 107.82 acres located in Gerbang Nusajaya, Johor.
MIDF remains neutral on the land acquisition and transfer of land as it is in line with UEMS’s strategy of rebalancing the landbank portfolio. Meanwhile, the proposed development on the land at Jalan Sultan Yahya Petra is expected to have an estimated GDV of RM1.5b with a development order (DO) obtained for the development of a shopping complex, hotel, and serviced apartment. The land cost to GDV ratio of 25.6% is deemed reasonable considering the prime location of the land in KL.
The purchase consideration is expected to be funded via internal cash and bank borrowings. The land acquisition is expected to lift net gearing of UEMS marginally to 0.54x from 0.5x as of 1QFY22. Meanwhile, earnings impact from the land acquisition is muted as a project on the land is expected to launch in 2024 with a development period of 4 years. Hence, we make no changes to our earnings forecast for FY22/23.
Maintain NEUTRAL with an unchanged TP of RM0.34. MIDF makes no changes to its RNAV valuation, pending completion of the land acquisition. TP is unchanged at RM0.34, based on 84% discount to RNAV. MIDF maintains a NEUTRAL call on UEM Sunrise as it sees tepid new sales outlook and lack of catalyst for UEMS
