Nov 14, 2009


(Nov 12, RM1.69)
Neutral at RM1.69: We revised downwards our earnings estimates for financial year (FY) ending December 2009 by 62% to reflect fewer land sales by the company for the rest of the year and higher expenses which translated into lower profit margins.

We believe the weaker market sentiment played its role in suppressing the attractiveness of the Nusajaya enclave in Johor, while progressive development cost and intense promotional and marketing activities by UEM Land had added downward pressure on its earnings. We maintain our FY10 estimates as we are confident that the developer’s land sales will rebound, helped by the company’s promotional and marketing activities in recent months.

Despite the real estate entity’s lacklustre cumulative earnings for the nine-month period ended September, we believe it will grow, by virtue of its master developer status in Nusajaya as it continues to benefit from the federal government’s support in the form of allocated funds amounting to RM8.2 billion from the stimulus package and the Ninth Malaysia Plan.

It is also worth noting that UEM Land, with its substantial landbank, would benefit from the appreciation in the value of its tracts, and continue to attract foreign investors. We are downgrading our recommendation for shares of UEM Land to neutral from buy with a lower target price of RM1.88 compared to RM2.30 previously. Our latest fair value is derived from a 75% discount to the company’s revised net asset value (RNAV).

The discount is by virtue of high execution risk in relation to the completion of the economic corridor within the stipulated timeframe, and concentration risk of the landbank in a single geographical area.

Looking ahead, we believe there is limited upside in the near term for the stock. This is because shares of the company had more than doubled so far this year and any pullback in the price would offer an opportunity to accumulate at lower levels. However, UEM Land remains an attractive growth story over the longer term. — MIDF Research, Nov 12