MITSUI *ISKANDAR* FOCUS

UEM Land: Ascott in Iskandar                                                                                    Underperform

 

News Update

 

¨          UEM Land announced that its 50:50 JV company with UM Land –

          Nusajaya Consolidated S/B has entered into two agreements with The Ascott Limited (under Capitaland) for the latter to provide technical advisory services as well as manage and operate 204 units of service residences to be known as “Somerset Puteri Harbour” in Nusajaya upon its expected completion.

        We believe the strategic tie-up is via UM Land as Capitaland has a 21% stake in the company.

        This new Somerset will be Ascott first presence in Johor.

Property: Wind or smoke?                                                                                                                        Underweight

 

Sector Update

 

¨            Looking at the recent development (Sime/E& O, SP Setia, and Bandaraya selling assets) in the property sector, although it could provide some trading interest in certain property stocks on speculation of a privatisation exercise, we believe the slew of events is one-off. M& A wave will be short-lived and not widespread. Taking the past events as a clue, mega M& A interests died down for 9 months after the lapse of MRCB-IJMLD offer beginning of this year. Hence, the M& A angle is not a strong re-rating catalyst for the sector. Valuations of property stocks should continue to price in fundamentals at least six months ahead.

 

27th September 2011

 

Top Story: Property – Hangover not yet over more room for downside                              Underweight (down from N)

 

Sector Update

 

¨            Many property stocks are still trading at above their 7-year historical mean PB and PE. We expect the sector to continue underperforming the broad market.

        Three key reasons:

          i) Avoid high-beta play as market risk premium heightens

        ii) Weakening RM signals more foreign equity selling and lower expected return from properties and

        iii) Less bullish sales target next year as we see downside risk to GDP growth.

 

¨            We highlight that, even after the global market selldown since early Aug that has led the FBM KLCI to retrace by 14%, foreign shareholding of many property developer stocks,

        especially the large caps such as

        UEM Land,

  SP Setia and

  Mah Sing,

        is still at a relatively high level.

        We caution that, as foreign funds continue to retreat from the Asian equity markets, as seen from the recent weakness in RM and other Asian currencies, this will likely exert further downward pressure on these property stocks in the coming months. Small caps, similarly, will share the same fate as they are generally illiquid.

 

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2QFY11 Results / Briefing note

¨            2Q11 net profit missed expectations by 20-30%. The strong sequential growth of 171% in turnover was due to higher revenue from property development projects (+125%) and developed land sales (to RM122.1m from RM7.3m in 1Q11). This 2Q11 results also reflected the full quarter contribution from Sunrise.

Unexpected Iskandar effect?

Malaysia’s ambitious Iskandar development in southern Johor may just have an unexpected spinoff effect that could eventually help ease Singapore’s property market woes and ease its labour issues.

Mr Tan Ting Min, an analyst at Credit Suisse, said that, currently, the land price arbitrage between Singapore and Johor is 1:16.

“How quickly this land price arbitrage narrows depends very much on how quickly Singaporeans adopt the idea of moving their manufacturing bases to Johor,” he added.

Already, Singapore has invested about US$153 million into the services, education and health sector of the Iskandar Malaysia development.

Further down the line, this is expected to have a positive impact on the Singapore economy.

CIMB Research economist Song Seng Wun said: “If we have at our doorstep an increased pool of qualified knowledge base labour force, we may be able to tap on that pool, bring them to Singapore and add to Singapore’s productivity growth prospect going forward.”

He added that Johor has become “a much more viable option” as a result of the improved communication and logistics network for Singaporeans to base themselves either for home or for business.

But any significant migration to Johor is not expected soon.

“I think we are realistically talking about something that is still in the works, perhaps a decade or more before we can really talk about Johor as a real hinterland,” added Mr Song.

Mr Vishal Sharma, a partner in corporate finance at KPMG, added: “I think in terms of the land price arbitrage I expect that you would see the Iskander land prices going up.  I don’t particularly envisage that the Singapore land prices are going to come down so the arbitrage will narrow but I don’t think that it is ever going to go away.”

RACHEL

Semiconductor: Taiwan - Pointing towards a better 2012                                                                                  Neutral

 

Sector Update

 

Unisem: Fair value: RM1.76                                                                                                                                                                                          Market Perform

 

Notion: Fair value: RM2.10                                                                                                                                                                                              Market Perform

 

13^th July 2011

Top Story: Benchmarking – Incoming heavyweights

Market Update

¨            Recent corporate activity suggests that there will be major changes in the composition of the FBM KLCI and FBM100 over the next 6-12 months.

¨            PLUS’ capital repayment and subsequent delisting is expected to occur in Sep as scheduled. With its delisting, we expect UEM Land as the largest stock in the reserve list currently to be added to the index.

UEM Land would have an index weight of 0.70% (vs. the outgoing PLUS which currently has an index weight of 1.74%. This implies that the change would be positive for the other constituents.

Top Story: Talking Points – Here come the Singaporeans

Market Update

¨            With cross-straits relations apparently at an all-time high, we note a recent uptick in the number of Singapore-related investments in Malaysia companies, notwithstanding the recent announcement by Khazanah Nasional and Temasek Holdings to cooperate in developing Iskandar Malaysia in Johor.

Sector Call

Property : Enough is enough                                                                                                                                                                Neutral (down from OW)

Sector Update

¨            We turn cautious on the sector in 3Q2011.

Based on historical pattern whereby a property upcycle normally lasts for two years, we believe the timing now is appropriate to be watchful on property stocks as well as the sector outlook as we are now almost two years into the upcycle, and property stock prices normally priced in 6-9 months ahead.

While the physical market is likely to remain strong until end 2011....