UEM Land - Damac scraps land deal

Middle Eastern investor Damac has notified UEM Land (UEML) it would not fulfil its Sales & Purchase Agreement (signed in Jun 08) to acquire about 44 acres of land in Puteri Harbour, Nusajaya for RM396m cash (equivalent to RM207psf).

This is not a surprise as much earlier on, the media had speculated over Damac’s cancellation in view of its financial difficulties since Dubai’s property bubble burst. In the past six months, Damac, one of Dubai’s largest private developers, had to pare its stakes in international operations, notably in Egypt. And according to a Dubai newspaper, it had to lay off about 200 workers. The land deal cancellation has put in limbo Damac’s development portion of Puteri Harbour, namely an integrated waterfront and marina project (GDV: RM3.8b).

We understand the other Middle Eastern investor in Puteri Harbour, Limitless, is still committed to its investment in Puteri Harbour. A JV company has been set up and layout plans for the canal housing precinct have been submitted for authority approval. Physical work (over 111 acres) is expected to start in end-09.

Although Damac’s cancellation is a setback, UEML will still realise its land values with all the ongoing Khazanah-led developments (eg Legoland) in Nusajaya (which also houses the Johor government’s new state administrative centre). In particular, the recent warming of Malaysia-Singapore ties (following PM Najib’s visit to Singapore) should lead to bilateral efforts in developing iconic developments in the Nusajaya area, eg the proposed wellness centre and mixed development project. As recently highlighted, the scheduled completion of major infrastructure works (highways in the Iskandar area) by 2011 is a major catalyst for future developments, which would thereby lift UEML’s land values (which are presently at a fraction of Singapore’s land values).

We cut our net profit forecasts for 2009, 2010 and 2011 by 23%, 21% and 24% to RM73.0m, RM83.5m and RM68.2m respectively as our earlier forecasts had factored in the land sale to Damac which was scheduled for equal-installment payments over four years.