UEM Land - 2Q09 results preview: A lacklustre performance in 2009

We expect 2Q09 net profit to improve qoq, mainly contributed by improved residential property sales. We expect lower 2009 earnings mainly due to lower land sales. Accumulate on weakness as share price softens. HOLD.

Earnings mainly contributed by improved residential property sales. 2Q09 net profit could have increased as much as 25% qoq due to the following: a) a low base in 1Q09, b) higher sales from residential projects such as Horizon Hills, East Ledang and Nusa Idaman, and c) contribution from Southern Industrial & Logistics Clusters (SiLC) in respect of industrial land sales as the manufacturing industry begins to recover.

JV with Limitless on Puteri Harbour will start soon. The layout plan for a canal housing precinct in Puteri Harbour, with GDV of RM1.5b over 111 acres (JV between UEM Land and Limitless on 40:60 basis), has been submitted to the local authorities for approval. Physical work should start as early as end- 09 and be fully completed in about eight years.

Land sale to Malaysian Biotechnology Corporation. Following the announcement of a collaboration between the government-owned Malaysian Biotechnology Corporation (MBC) and the Group (40:60) to develop a biotechnology hub in Nusajaya, the sale of 61 acres of industrial land in SiLC to MBC will generate about RM41m sales for the Group. However, only 30 acres of land sales, equivalent to RM20m, will be booked in 2H09.

Uphill task to achieve 2009 target. The Group may have difficulty achieving its 2009 target ROE of 6%, equivalent to RM100m net profit. This is mainly due to lower land sale contributions following Damac’s cancellation of its RM396m land purchase in Puteri Harbour (44 acres) and weakening global economic outlook which has affected land acquisitions by foreign investors in 2009.

Land sales expected to pick up in 2010. Earnings outlook for 2010 will be improved as top line is supported by a pick-up in residential property and industrial land sales. We also understand that the Group is negotiating to sell the following: a) a piece of land in Puteri Harbour with about 40 acres to a government corporation with an indicative price of RM40psf, and b) a piece of land in Nusajaya with about 60 acres to the state government at an indicative price of RM11psf.

Maintain HOLD with fair price of RM1.60. Our revised fair price is based on a 20% discount to our RNAV of RM2.00/share, which assumes an average value of RM13psf for the Nusajaya land. As an indication, we provide a sensitivity analysis (refer to table on the right) of UEM Land’s RNAV to various land price assumptions.