UEM Sunrise to acquire 50% stake in JCSB for RM214.88m

UEM Sunrise Bhd (Dec 2, RM1.14)
Maintain neutral with an unchanged target price (TP) of RM1.10: UEM Sunrise Bhd has entered into a conditional subscription and shareholders’ agreement with WCT Holdings Bhd to acquire a 50% stake in Jubilant Courtyard Sdn Bhd (JCSB) for RM214.88 million. Note that JCSB is the legal owner of 10 parcels of land measuring 608.63 acres (246.3ha) located in Serendah, Selangor. The deal is expected to complete in the second quarter of 2016. Pursuant to the deal, WCT will hold the remaining 50% stake in JCSB.

We gather that UEM Sunrise and WCT intend to undertake a mixed development project on the land with gross development value of approximately RM3 billion. The land is under industrial land title and hence it needs approval from the Majlis Mesyuarat Kerajaan Negeri Selangor for the rezoning of the land to mixed development before it can be developed. All in, we believe that the project will only be launched in 2017 with earnings contribution to start from financial year ending Dec 31, 2018 (FY18) onwards.

We gather that a recent transacted deal in March in Seksyen 20, Bandar Serendah was done at RM12.92 per sq ft. UEM Sunrise’s deal is valued higher at RM16.21 per sq ft, this could be due to better location as it is closer to the North-South Expressway.

We are neutral on the news as we expect no earnings impact on FY15 and FY16. As mentioned previously, we expect the property launch to start only in 2017 due to the time needed for rezoning application and planning for the project, hence we expect no earnings impact on FY15 and FY16. But on a positive note, the land purchase should provide greater stability to UEM Sunrise’s earnings profile in the future as it lessens the dependency on the Johor property market.

We maintain “neutral” with TP of RM1.10. Our revised net asset value (RNAV) valuation is unchanged at this juncture pending the completion of the deal. Our methodology is unchanged based on 50% discount to RNAV. Upside is capped due to weak property market in Johor. However, share price downside is also limited as it is already below its net tangible asset of RM1.30 per share.


This article first appeared in The Edge Financial Daily, on December 3, 2015. Tap here to subscribe for your personal copy.