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UEM Land bagging government land?

UEM Land Holdings Bhd (Dec 16, RM2.26)
Maintain hold at RM2.24 with target price of RM2.02:
Rising news flow on government land development awards may lift UEML's near-term share price as it is viewed as one of the front runners. While UEML may benefit from these land wins, some of its existing projects especially in Mont'Kiara, are facing competition from the rising RM15 billion KL Metropolis project.

We maintain our earnings forecasts and RM2.02 target price (40% discount to RM3.37 realisbale net asset value). UEML will be the first property group to be included in FBM KLCI 30 (from today).

We understand that UEML has been shortlisted for the 7.7ha RNAV-accretive Unilever land. The results should be announced by end-2011/early-2012. Given Sunrise Bhd's strong branding and track record in integrated high-rise developments being embedded in the enlarged UEML group post merger, we believe UEML stands a strong chance to clinch the land bid. We estimate a five to seven sen enhancement to our RNAV, if it materialises.

UEML remains confident on the Pudu Jail redevelopment and 1,214ha Rubber Research Institute Malaysia (RRIM) land development in Sungai Buloh, Selangor. We expect the awards to be announced by mid-2012. The securing of these developments (especially RRIM land) would provide a strong impetus to UEML's medium-term earnings and valuation.

We are more upbeat on the Unilever land given: (i) shorter time to complete and lower upfront infrastructure costs compared with the RRIM greenfield land; (ii) lower take-up risks compared with the Pudu Jail redevelopment project which will face stiff competition from surrounding offices/hotels/malls and future government developments like KL International Financial District; and (iii) potential investment by Pelaburan Hartanah Bumiputera Bhd in the Unilever development itself, thereby reducing take-up risks.

We expect increasingly tougher competition in the property market especially the office segment due to massive government land developments. These projects could flush the market with ample supply of varieties, raise take-up/occupancy risks and limit pricing power. We are cautious on UEML's Aurora Tower and Mont'Kiara projects and see pricing as the key success determinant. — Maybank IB Research, Dec 16

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