United Malayan Land (CIMB Research) buy; target price RM2.11

United Malayan Land
Investment highlights

• Three launches support BUY call. With several new residential projects lined up for launch over the next 1-2 years, UM Land is well placed for a boost to sales given the promising outlook for the property sector, particularly for the residential segment. We retain our BUY recommendation and RM2.11 target price, which we continue to base on a 50% discount to its RNAV.
The share price could be catalysed by 1) robust sales for property developers in general, 2) more land acquisitions, and 3) M&A activity in the property sector. We would not discount the possibility of UM Land partaking in M&As as the group has decent landbank and its shareholding is fragmented.

• Share price underperformed sector. The property sector was the best-performing major sector in 2010 and UM Land’s 26% gain during the year also beat the KLCI’s 19% appreciation. But UM Land underperformed the property sector as a whole as the KL PRP Index rose 31% during the year.
Although it was a busy year in terms of land acquisitions and disposals for UM Land, major launches were thin on the ground. Its one major launch was the soft launch of the RM274m Suasana Bukit Ceylon condo project on 2 Nov. Slow launch activity and lower profits in 2010 vs. 2009 would explain why UM Land’s share price lagged behind other property stocks.

• Earnings rebound in 2012. We expect FY11 net profit to match broadly FY10’s as net earnings in FY10 should be boosted by the RM15m Ipjora land sale gains. FY12 should enjoy a more substantial improvement due to three new launches. The next major launch is the RM144m Puteri Harbour condo project in Iskandar Malaysia, Johor, in 1Q11.
The RM305m Matex serviced apartment and retail project in Johor Bahru is also slated for launch in FY11. As for the mammoth RM2.2bn Jalan Mayang condo near KLCC, the launch date is targeted for FY12. However, we flag execution and delay risks, as has been the case several times before, either due to less-than-suitable market conditions or unforeseen red tape.

Recent developments

Of the major sectors under our coverage, the property sector was the best performer in 2010 and UM Land’s 26% gain during the year also beat the KLCI’s 19% appreciation. But UM Land underperformed the property sector as a whole as the KL PRP Index rose 31% during the year. Although it was a busy year in terms of land acquisition and disposals for UM Land, major launches were thin on the ground. Its one major launch was the soft launch of the RM274m Suasana Bukit Ceylon condo project on 2 Nov. Slow launch activity and lower profits in 2010 vs. 2009 would explain why UM Land’s share price lagged behind other property stocks.
 
In the 1st nine months of FY10, UM Land launched RM159m worth of properties and  chieved sales of RM96m. The launches came mainly from the three townships – Bandar Seri Alam (RM37m), Seri Austin (RM60m) and Bandar Seri Putra (RM62m). These townships racked up RM147m sales (RM20m from Bandar Seri Alam, RM73m from Seri Austin and RM54m from Bandar Seri Putra), a big improvement on sales during the same period in FY09.

The group also reaped RM20m from land sales and RM43m sales from the Suasana Bangsar condo. The Suasana Bangsar condo project was 96% sold and 99% completed as at Oct and was handed over in Dec. The Suasana Bukit Ceylon condo has chalked up a take-up rate of around 40%.

In terms of land acquisitions, UM Land raised its stake in the Suasana Bukit Ceylon land from 35% to 100% in Feb 2010. In Dec 2010, the group acquired the Puteri Harbour land for RM49.6m. Its main disposal was the Ipjora land which was sold on 18 Oct 2010, netting a RM15m gain. This plot of land in Kuala Lumpur measures 16,856 sq ft and was disposed for RM25m or RM1,483 psf.

We expect FY11 net earnings to match broadly FY10’s as net profit in FY10 was boosted by the RM15m land sale gain. FY12 should enjoy a more substantial improvement due to three new launches. The next major launch is the RM144m Puteri Harbour condo project in Iskandar Malaysia, Johor, in 1Q11.

The RM305m Matex serviced apartment and retail project in Johor Bahru is also slated for launch in FY11. As for the mammoth RM2.2bn Jalan Mayang condo near KLCC, the launch date is targeted for FY12. However, we flag execution and delay risks, as has been the case several times before, either due to less-than-suitable market conditions or unforeseen red tape.

Puteri Harbour condo – This is a 50:50 joint venture with UEM Land (ULHB MK; Not Rated) to develop a 5-storey boutique apartment project with a retail component. The project has prime harbour frontage and sits on 2.2 acres of land acquired at a cost of RM170 psf. Net saleable area measures 242,000 sq ft. Preliminarily, the JV is looking to price the apartments at RM550 psf and the retail space at RM570 psf. However, we would not be surprised if the final prices were higher given the rapid appreciation of land values in the area.

Matex land – This wholly-owned project is located within the Johor Bahru Central Business District and measures 1.5 acres.

The land was acquired at a cost of RM27m or RM416 psf. A 43-storey serviced apartment development with a retail component will be developed. Indicative pricing is RM600 psf for the serviced apartments and RM1,000 psf for the retail space. Total net saleable area measures 449,000 sq ft.

The project is targeted for launch by end-2011 or early 2012. Jalan Mayang land – This 50%-owned project is located a stone’s throw from the Petronas Twin Towers. The cost of the 4.3 acres of land is relatively low at RM600 psf as it was purchased several years ago.

It will be the site of a 45-storey 308-unit condo development priced at RM1,500 psf. Total net saleable area amounts to 1.5m sq ft.

This project runs the highest risk of being postponed given the oversupply of condos in the KLCC area and poor capital values.

Sector outlook

We are bullish about the property sector in 2011, especially property developers. The two key determinants of property demand – the state of the economy and stockmarket
– continue to head higher and affordability of residential properties is near its best. We are forecasting real GDP to expand by 5.5% in 2011 before accelerating 6% in 2012.
For the stockmarket, we expect the KLCI to hit 1,700 points by year-end.

Recommendation

The outlook for the property sector in 2011 is promising, particularly for residential properties. UM Land has several new residential projects lined up for launch over the next 1-2 years, which should give sales a boost. We retain our BUY recommendation and RM2.11 target price, which we continue to base on a 50% discount to its RNAV. The share price could be catalysed by 1) robust sales by property developers in general, 2) more land acquisitions and 3) M&A activity in the property sector. We would not discount the possibility of UM Land partaking in M&As as the group has decent landbank and its shareholding is fragmented.