PETALING JAYA: The joint venture (JV) between plantation heavyweight Kuala Lumpur Kepong Bhd (KLK) and Nusajaya’s master developer UEM Sunrise Bhd to develop each other’s landbank in Johor’s Iskandar Malaysia has been well perceived by analysts, as the move allows both parties to unlock the value of their assets.
While most analysts concurred that the deals were long-term positive for both companies, they were neutral on them in the immediate future, as the projects might only commence in 2017.
To recap, KLK and UEM Sunrise have exchanged land at the price of RM871.2mil each to develop projects collectively worth RM20bil.
KLK is selling 1,011.71ha at Fraser Metropolis for RM8 per square foot (psf), while UEM Sunrise is unlocking the value of its 202.34ha at Gerbang Nusajaya for RM40 psf via the incorporation of two JV vehicles.
In a note to investors, Maybank Investment Bank Research (Maybank IB) upgraded both companies to “hold” from “sell”, as it revised KLK’s target price to RM24.00 from RM19.90 previously based on a higher price-to-earnings ratio (PER). Meanwhile, the brokerage has upgraded its call on UEM Sunrise due to its recent price weakness.
Commenting on KLK, Maybank IB said, “Besides posting an estimated one-off disposal gain of RM816.8mil or 77 sen per share, the development of Fraser Metropolis will, over time, enhance the value of KLK’s remaining landbank in Kulai measuring 1,916ha.”
It added that the two tie-ups in Iskandar Malaysia would allow KLK to diversify the geographical presence of its property arm.
“A higher PER is justified, for we believe KLK will be more aggressive in unlocking the value of its plantation landbank in the Klang Valley and Iskandar Malaysia via property development, providing a new source of profit growth moving forward,” it said, noting that KLK already had a township development in the Klang Valley – Bandar Seri Coalfields in Sungai Buloh.
In a separate report, Kenanga Research said the land price was attractive, as it expects up to 30% pre-tax margins for the Fraser Metropolis project and 20% to 25% margins for Gerbang Nusajaya.
As for UEM Sunrise, CIMB Research said the property player would bag RM228mil in pre-tax profits in 2014 or 2015.
“Investors should accumulate UEM Sunrise on the back of more positive newsflow on Iskandar Malaysia and a rebound in broad property demand in Malaysia, likely by mid-2014,” the research unit said, after its share price having taken a beating upon the introduction of property cooling measures as well as its removal as a component stock from the FTSE Bursa Malaysia KL Composite Index.
UEM Sunrise rose six sen to RM2.16, while KLK fell six sen to RM23.52.