UEM Sunrise emerges as a potential takeover target, says RHB Research

 Property developer’s low valuation and its huge landbank in Johor makes it an attractive takeover or privatisation target.

UEM Sunrise’s jewel in its crown is its Johor landbank, which is valued significantly higher than its market capitalisation.

PETALING JAYA:

 An undervalued UEM Sunrise Bhd (UEMS), which has a strategic landbank in Johor, has emerged as a takeover or privatisation target, according to RHB Research.

The research house noted the company’s current market value of RM2.6 billion significantly undervalues its 4,516.7 acres of land in Johor.

It said although UEM Sunrise could be one of the worst performing property stocks this year, its valuation should be supported by the value of its Iskandar Malaysia landbank, given the upcoming completion of the Rapid Transit System (RTS) Link and Johor-Singapore Special Economic Zone (JS-SEZ).

“Due to the lack of earnings quality and convincing execution of catalytic projects in the past, its share price de-rated since last year. While fundamentals are weak, we view UEMS differently given its strategic landbank.

“Its current market capitalisation implies a valuation of only RM13 per sq ft for its land in Johor. Hence, UEMS looks to be an attractive takeover/privatisation target in our view,” the research house said in a note today.

It said land prices in Iskandar Malaysia have appreciated significantly over the last two to three years, driven by the upcoming completion of the RTS Link, influx of investments, and the JS-SEZ, with various parties actively acquiring land in Johor.

RHB said the group indicated it has earmarked about 1,000 acres of its land in Johor for monetisation, which could fetch around RM4 billion. This essentially means its Johor landbank is the jewel in its crown, with a value significantly higher than the company’s market capitalisation.

Its shares closed 1.5 sen or 3% higher at 52 sen today, valuing the group at RM2.63 billion. Its shares have fallen nearly 29% over the past one year.

The idea of a merger and acquisition (M&A) is not new for UEMS, as there was a proposal to merge with Eco World Development Group Bhd in 2020, RHB said.

“The proposed merger was subsequently terminated due to challenging economic conditions,” it added.

RHB’s statement that UEMS looks to be “an attractive takeover target” comes on the heels of the failed RM11 billion takeover bid by Sunway Bhd for construction group IJM Corp Bhd earlier this month.

Sunway’s takeover offer lapsed on April 6 after it failed to secure acceptances for more than 50% of the shares from IJM shareholders. Both IJM and UEMS are GLCs.

Despite the current cautious market sentiment, RHB said demand for property, especially in Iskandar Malaysia, remains resilient.

It noted that UEMS’s recent launch of Aspira Place (gross development value: RM220 million), featuring 96 units of shop lots priced at RM1.6-2.5 million each were fully taken up.

RHB maintained its “buy” call on UEMS but lowered its target price to 86 sen, giving it a potential upside of 65% from the current price. - FMT