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UEM Sunrise’s land sale to improve net gearing

KUALA LUMPUR (Nov 1): The net gearing of UEM Sunrise Bhd is expected to improve to 0.42 times from 0.47 times as at its second financial quarter ended June 30, 2017 (2QFY17), with the sale of 163.92 acres (66.34ha) of land in Iskandar Puteri, Johor, to Country View Bhd for RM310 million, according to analysts tracking the stock.

MIDF Research, in a note yesterday following UEM Sunrise’s announcement on Monday it had inked an agreement for the proposed sale, said the disposal should improve UEM Sunrise’s balance sheet, with net gearing estimated to improve to 0.42 times from 0.47 times as at end of 2QFY17.

PublicInvest Research concurred, expecting the gearing improvement on completion of the deal by 3QFY18, though it said no details on potential profit have been disclosed as yet.

It also said the price of RM310 million or RM43.4 per sq ft for the land is within the valuations carried out on the plot by Asian Pullprop Sdn Bhd of RM307 million and Jones Lang Wootton of RM300 million.

“We are positive about this latest land disposal as this would allow the group to monetise its vast land bank in Iskandar Johor and redeploy the capital either to pare down its debt or invest in new land bank,” PublicInvest said.

Hong Leong Investment Bank (HLIB) Research deems the pricing “fair”. “The pricing works out to be RM43.4 per sq ft, which is fair as compared with the previous transacted price of RM40 per sq ft during the land exchange with Kuala Lumpur Kepong Bhd (KLK) when forming the joint venture (JV) back in 2014,” it said in a note to clients.

In 2014, KLK and UEM Sunrise formed two JV companies — Scope Energy Sdn Bhd and Aura Muhibah Sdn Bhd — to undertake property development projects in Johor.

HLIB Research said the sale is in line with UEM Sunrise’s strategy as a master developer in Gerbang Nusajaya to unlock the land value and spur future growth. “Post disposal, UEM Sunrise still owns about 6,400 acres of land within the Iskandar Puteri region,” it said.

Nevertheless, MIDF Research is "neutral" about the land disposal, saying UEM Sunrise has always been exploring ways to monetise its vast land banks in Iskandar Puteri.

“UEM Sunrise has a vast landbank of more than 10,000 acres in Johor while [the] remaining acreage for Iskandar Puteri stood at 6,552 acres, which makes up 50% of the group’s total land bank. The land disposal allows UEM Sunrise to unlock value of its vast land banks,” it added.

But pending further details from management, MIDF Research is maintaining its earnings forecast for UEM Sunrise — a core net income of RM240 million for FY17 and RM199 million for FY18.

It is also keeping its “neutral” call on UEM Sunrise with a target price (TP) of RM1.24, premised on the flattish property outlook in Johor, while PublicInvest maintained its “outperform” call on the stock with a TP of RM1.50, and HLIB Research kept its "hold" call, with a TP of RM1.18.

This article first appeared in The Edge Financial Daily, on Nov 1, 2017.

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