KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for UEM Sunrise and at a lower target price of RM1.03 compared with the previous RM1.20. Its last traded price was 94 sen.

It said on Monday UEM Sunrise was teaming up with Mega Legacy (MLM) to jointly develop 72.7 acres of land in Kepong. 

The estimated gross development value (GDV) of the land is RM15bil. 

The 72.7 acres, consisting of 10 parcels on lease for 99 years, will be acquired by MLM from Datuk Bandar for RM416.4mil. 

 “Maintain Hold. Our target price is cut to RM1.03 as we widen our realised net asset value (RNAV) discount to 70% from 65% previously, factoring in the rising interest rate environment,” it said.  

CIMB Sunrise said the purchasing price of RM132 per sq ft seems fair. The development order (DO) for the parcels of land was obtained in August 2017 for mixed commercial use with a plot ratio of one to six and includes two interchanges to be constructed connecting directly to the Middle Ring Road II (MRR II). 

The parcels are 13km northwest of Kuala Lumpur City Centre in Jinjang Utara. 

Raine & Horne valued the Parcels at RM950m or c.RM300/sq ft while the proposed purchase price of RM416.4mil valued the land at RM132/sq ft

“We believe this deal is positive for UEM Sunrise as: (i) it lifts its landbank in Kuala Lumpur (existing KL landbank was 58.6 acres at end-2017), (ii) the parcels come with approved DO, (iii) the parcels are not subject to affordable home requirements, (iii) expected development period of 15 years ensures a stable revenue stream, (iv) MLM’s financials will be consolidated as UEM Sunrise holds a controlling stake, and (v) the land cost is low at c.3% of the proposed gross development value (GDV) of RM15bn. 

CIMB Research said UEM Sunrise will finance the subscription via internally-generated funds. This bumps up its net gearing ratio to 48% vs. 44% as of end-2017, which is still manageable, in its view.

“Despite the stronger earnings outlook for FY18, we maintain our Hold call on the back of an uninspiring FY18 sales target of RM1.2bil and potential earnings risk in 2018 from the adoption of MFRS15.  

“A stronger-than-expected sales performance and sustained strong earnings delivery in FY18F are the key upside risks to our Hold call. The key downside risk is further deterioration of Malaysia's property market,” it said.