Analysts peg long-term positive on UEM’s JV with Mulpha to develop Nusajaya land

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KUCHING: UEM Sunrise Bhd’s (UEM) latest joint venture (JV) with Mulpha International Bhd (Mulpha) has been viewed positively as the economic activities created there should result in a higher land price.

Of note, UEM had entered into a 50:50 JV with Mulpha to develop land in Nusajaya with a gross development value (GDV) estimated at RM5 billion over 20 years.

MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) said, “We are positive on the news as the JV should accelerate the development momentum in Gerbang Nusajaya. In the long run, the economic activities created there should result in higher land price for other land owned by UEM in Nusajaya.”

It added, any earnings impact would likely come in only from the financial year 2018 (FY18) onwards.

“We gather that the JV Company will buy in total 140.13 acres from UEM and 91.22 acres from Mulpha. The price of the land purchase has yet to be finalised but Base Land Price (BLP) for UEM and Mulpha land is RM315.2 million and RM312.7 million respectively.

“The purchase price will be calculated based on the relevant BLP with a 2.5 per cent increase annually. UEM book value for the land is RM25.4 million as of end-2014,” MIDF Research explained.

Meanwhile, Kenanga Investment Bank Bhd’s research arm (Kenanga Research) in a separate report, believed that the land price is fair given that the land-to-GDV ratio is at 13 per cent.

“Impact to net gearing after the land disposal (likely in FY18) is less than a five per cent reduction in net gearing versus our current FY15 estimate (FY15E) gearing of 0.3-folds.

“We expect a land disposal profit after tax and minority interest (PATAMI) of RM109 million (based on the ‘base price’) which will likely take place in FY18.”

“However, in the near-term, we are neutral as it will take more than two years to see significant contributions while the deal is still in its early days,” it opined.

All in, Kenanga Research maintained a ‘market perform’ recommendation of the stock while MIDF Research maintained its ‘neutral’ view of the stock.

“Although the total return of the stock is now expected at 16.7 per cent, we maintain our ‘neutral’ view on the stock as we believe that the property sector outlook remains challenging at least in in the first half of 2016.”