Catalytic projects to spur on UEM Land

IN just two months, UEM Land Holdings Bhd has announced three important deals that are poised to be catalysts for its Nusajaya development in southern Johor.

Having signed an agreement with Singapore's Ascendas Group in late October to develop a 519-acre parcel with a gross development value (GDV) of RM3.7 billion, the group last week tied up with Singapore billionaire Peter Lim to develop the Motorsports City project worth RM3.5 billion. This was followed by another deal with China Mall Holdings to build a trade centre that caters for Chinese merchants, the cost of which was not disclosed.

UEM Land's share price received a boost from the Ascendas deal in late October, rebounding from a one-year low of about RM1.60 to as high as RM2.25. But the two land deals last week did not see the counter go any higher. It closed at RM2.15 last Friday, giving the company a market capitalisation of RM9.26 billion. YTD, the stock is still down about 9.7% amid weak market sentiment pending the upcoming general election.

Investors are still on the sidelines, although analysts and fund managers are optimistic that UEM Land will further unlock and realise the value of its massive landbank in Johor — about 5,300 acres in Nusajaya, which is part of Iskandar Malaysia, and another 1,200 acres elsewhere.

As the group is seen more as a landbank company instead of a developer, analysts say more such deals on top of those signed in recent months will build a strong case for an appreciation in its share price. This is backed by a further re-rating of its revised net asset value (RNAV), which is now between RM3.31 and RM3.38 per share.

"Individually, these announcements are not game changers. But as a whole, they will create value for Nusajaya and attract people to live there," says an analyst with a bank-backed research house.

Key to re-rating UEM Land's RNAV is the expansion of the population in Nusajaya, which will drive up demand for its landbank. However, property watchers say simply pumping a lot of money into a development is no guarantee that a huge number of people will move there. For example, Putrajaya has experienced slow population growth despite the amount of money that was invested in it.

But unlike Putrajaya, Nusajaya is near Singapore and thus far, UEM Land's launches close to the island republic have been quite successful. At end-November, the company launched Teega @ Puteri Harbour, which saw a healthy take-up rate of over 80% for its 900 serviced apartments that were sold at an average price of RM700 psf — comparable to prices in Petaling Jaya.

"You can't really compare Puteri Harbour with Gerbang Nusajaya because it is much closer to Singapore and is in a premium location. However, it does show that there is a lot of demand for property in the area," says an analyst.

The launch only involved the first two of three 35-storey blocks in the development, which has an estimated GDV of RM871 million. The launch was offered to UEM Land's repeat customers and an estimated 20% of the buyers were Singaporeans.

"Nusajaya is at a turning point. It is beginning to attract investor interest. But it is going to need more life and people. It will take time, but the recent announcements by UEM Land show that it is on the right track," says Public Bank Research analyst Tan Siang Hing.

Meanwhile, the 30:70 joint venture between UEM Land and Peter Lim's FASTrack Autosports Pte Ltd for the Motorsports City project has generated much attention. Apart from a 4.5km racetrack, Motorsports City will boast an integrated mixed-use development to house service centres, car showrooms, a spare parts and accessories hub and an automotive upgrade centre.

"One thing that Malaysia has, which Singapore doesn't, is land. That is why we can afford to build something like this over here. This is going to target rich Singaporeans who come here if they want to take their Ferraris out for a spin," says Tan.

Besides the unique offering of a test track, which has been dubbed the Nurburging of Iskandar Malaysia, Motorsports City will also create employment, which will be key to Nusajaya's success, he adds.

The motorsport hub is going to be built on a 270-acre parcel, which will be sold to the JV for RM223.5 million or RM19 psf. While the valuation of the land appears fair, analysts say the price is unlikely to be a good benchmark of the value of UEM Land's undeveloped 4,500 acres in Nusajaya.

"Because it isn't a disposal of land but was sold as a catalytic development for Nusajaya," says Hong Leong Investment Bank Research's Sean Lim.

Also, as Tan points out, the valuation of the land will vary according to the terrain.

As a comparison, UEM Land is selling 519 acres of industrial land to its 40:60 joint venture with Ascendas at an average price of RM18 psf. An analyst points out that this land is for industrial use while the land for Motorsports City is for commercial use and is hence worth more.

UEM Land has also inked a memorandum of understanding with Chinamall Holdings Pte Ltd to cooperate on the proposed development of China Mall, a trade and exhibition centre in Gerbang Nusajaya.

Analysts say the MoU with Chinamall is still sketchy as it lacks details such as the land size involved and amount to be invested. However, the mall is said to be similar to Dubai's Dragonmart, the largest trading centre for Chinese products outside the republic. Dragonmart is 1.2km long and hosts 3,950 shops in 1.6 million sq ft of space.

"China Mall as a concept is a good idea as it will definitely create employment and attract people to Nusajaya. We will just have to wait and see if it materialises," says Tan.

"UEM Land is still the best Johor play among the property developers, so it will do well in the long run. However, there are a few hurdles it will need to overcome, one of which is to expand the population of Nusajaya while bringing in more catalytic developments," says an analyst.

Meanwhile, the group's sales have fallen short of its initially projected RM3 billion for 2012. "Last year, it booked about RM2.2 billion in sales. Excluding land disposals, property sales were around RM1.9 billion. This year, we expect sales to come in slightly short of last year's figure due to the delay of several launches," says the analyst.

However, for the full year ending Dec 31, 2012, UEM Land looks set to achieve a record high profit. For the nine months ended Sept 30, it posted a net profit of RM247.08 million, up 53.3% from RM161.15 million in the previous corresponding period.

Thus far, analysts have not been very generous in assigning their target prices for UEM Land. Those who refreshed their ratings after the signing of the agreements for Motorsports City and China Mall last week had target prices of RM2.06 to RM2.80, with the mean at RM2.41, according to Bloomberg.

"Post-election, we can expect a more robust share price performance, especially if UEM Land can maintain its current stream of news flow on Iskandar," says the analyst.

This story first appeared in The Edge weekly edition of Dec 10-16, 2012.