UEM Sunrise’s land bank monetisation a positive

PETALING JAYA: UEM Sunrise Bhd has divested more non-core land to lower its debt, but many analysts remain bearish on the stock due to its high valuation.

The property group has agreed to sell its remaining 40% stake in Aura Muhibah Sdn Bhd (AMSB) to KLK Land Sdn Bhd, a wholly owned unit of Kuala Lumpur Kepong Bhd (KLK), for RM386.2mil cash. KLK Land will then wholly own AMSB.

AMSB owns 2,500 acres of land in Kulai, Johor, and the sale price translates to RM8.87 per sq ft, which analysts deem reasonable given the size of the land.

“We are neutral on the deal. The selling price is 6% above the previous divestment, where UEM Sunrise had disposed of a 20% stake in AMSB to KLK Land in October 2020 for RM183mil or RM8.38 per sq ft, but it is 27% lower than the RM12 per sq ft that Eco World Development Group Bhd had paid for a piece of land in Kulai in September 2023.

“This could be due to the larger land size compared to Eco World’s 404 acres,” Maybank Investment Bank (Maybank IB) Research stated in a report on UEM Sunrise.

The estimated net gain from the disposal is RM32mil, which is to be recognised in the second half of financial year 2024 (FY24), with proceeds intended to reduce debt and lower UEM Sunrise’s net gearing to 40.5% from 46% in the first quarter of 2024.

Maybank IB Research kept its “sell” call on UEM Sunrise and target price (TP) unchanged at RM1 per share based on 0.75 times its FY25 price-to-book value, despite the deal.

HLIB Research lowered its TP to 72 sen per share (from 73 sen) for UEM Sunrise based on a 65% discount to its revised net asset value (RNAV) of RM2.06 per share after accounting for the disposal.

“The valuation of the stock remains rich, trading at FY24, FY25 and FY26 price earnings ratio of 37.8 times, 61.5 times and 47.3 times. Therefore, we maintain our ‘sell’ recommendation,” it noted.

AmInvestment Bank Research , however upgraded UEM Sunrise to a “buy” from “hold” with a higher fair value of RM1.38 per share (from 99 sen previously) by halving the discount to 20% for its RNAV valuation on the developer.

It stated the narrower discount to RNAV stemmed from UEM Sunrise’s continuous monetisation of its huge land bank, underpinned by the re-rating cycle of the Johor property market being driven by potential data centre newbuilds and infrastructural developments, including the proposed Kuala Lumpur-Singapore high-speed rail and Johor light rail transit.