HLIB retains 'Buy' on UEM Sunrise as RM4bil industrial JV unlocks Johor landbank

KUALA LUMPUR: Hong Leong Investment Bank (HLIB) has maintained its "Buy" recommendation on UEM Sunrise Bhd, with an unchanged target price of 92 sen, based on a 60 per cent discount to its estimated revalued net asset value (RNAV) of RM2.30.

The research house believes sustained landbank monetisation, backed by experienced development partners and stronger execution, could gradually narrow the market's discount to the group's RNAV and support a share price re-rating.

UEM Sunrise is stepping up efforts to monetise its Johor landbank through a 50:50 joint venture (JV) with AME Elite Consortium Bhd to develop a RM4 billion integrated managed industrial park in Gerbang Nusajaya, Iskandar Puteri.

The partnership involves UEM Sunrise disposing of 402.1 acres of freehold land to the JV, via Gerbang Synergy Sdn Bhd, for RM972.1 million, or RM55.50 per sq ft. The agreement was signed on Oct 30.

HLIB Research said the disposal consideration represents a 4.7 per cent premium to the land's independently assessed market value of RM928.3 million and is broadly in line with AME's valuation of RM975 million.

Although development commencement is now targeted for the end of 2027, HLIB views the partnership positively, citing the higher gross development value (GDV) of RM4 billion, up from the original RM3.6 billion, and lower execution risks through collaboration with an established industrial park developer.

"Secondly, we believe the partnership lowers execution risk for UEM Sunrise, as it would not need to incur additional costs to set up an industrial team to handle the project. At the same time, the partnership can capitalise on AME's capabilities in delivering world-class managed industrial parks and its extensive clientele base.

"Hence, despite the initial delay, we believe the overall development period could be accelerated once the project kicks off, supported by its partner's established network and strong execution capabilities," HLIB said in a note.

The project will comprise industrial facilities, ancillary commercial space, workers' accommodation and supporting infrastructure, developed in three phases over approximately 10 years.

Located within the Johor-Singapore Special Economic Zone (JS-SEZ), the site is about 13 km from the Port of Tanjung Pelepas and 10 km from the Sultan Abu Bakar Customs, Immigration and Quarantine complex, providing connectivity to Singapore and regional supply chains.

Under the arrangement, AME will oversee project and marketing management, while UEM Sunrise will undertake the agreed earthworks and master infrastructure. The collaboration allows UEM Sunrise to tap AME's industrial development expertise and established clientele while freeing up internal resources to focus on activating other parts of its sizeable Johor landbank.

Financially, the disposal is expected to generate an estimated net gain of RM47.4 million, equivalent to 0.94 sen per share, after costs, tax and accounting adjustments. HLIB said the gain would be recognised progressively as the relevant payment and development milestones are achieved.

The transaction is also expected to lower UEM Sunrise's pro forma net gearing to 0.30 times from 0.37 times as of Dec 31, 2025.

Beyond the land disposal, the JV provides longer-term earnings potential. Based on the RM4 billion GDV, an assumed net margin of 20 per cent and a 10-year development period, the project could generate average annual net profit of about RM80 million, with RM40 million attributable to UEM Sunrise based on its 50 per cent stake. Actual contributions are expected to be lower in the initial years and will depend on sales and development progress.

HLIB trimmed its FY27 and FY28 earnings forecasts by 2.2 per cent and 3.5 per cent, respectively, reflecting the delayed project launch and lower attributable earnings under the JV structure.

RHB Research views the JV positively, given the latter's strong track record as an industrial park developer.

The partnership is expected to significantly enhance the growth prospects and overall positioning of the Gerbang Nusajaya masterplan, it said in a note.

"Nevertheless, we reduce our target price (to 77 sen from 86 sen) to reflect the prevailing market headwinds as well as concerns over the current local political landscape," the firm said.