UEM Land Bhd 1-for-2 Rights analysis

UEM Land Bhd  1-for-2 Rights.
•  UEM Land Bhd (ULHB) has proposed a 1-for-2 rights issue priced at RM0.80 per share to raise RM971.3m.  A total of 1214.1m shares will be offered to existing shareholders. 77.14% will be subscribed by the UEM Group.
•  The issue price of RM0.80 per rights share is a 44.1% discount to the counter’s 5-day moving average (RM1.43) and -34.4% to the derived theoretical ex-rights price of RM1.24. 
•  Maintain NEUTRAL with revised Target Price of RM1.25 ex-rights, derived from a 25% discount to RNAV. We advise existing shareholders to subscribe to the rights share to further increase their investment and equity participation. Despite our ex-price TP providing a mere +2.4% upside to the counter, the subscription of the rights is a viable option for investor to average down cost. Note the ULHB traded at its highest at RM2.01 per share on 15th June 09.  

uemland-info

Purpose of proceeds. The group had proposed 5 utilizations for the proposed rights issue:-
i) Repayment of a Term Loans (RM633.0m) owed by Bandar Nusajaya Development Sdn Bhd to UEM Group.  
ii) 1st installment for the purchase of land parcels in Cyberjaya for its Symphony  Hills development (RM65.1m)
iii) Working capital and property development expenditure of ULHB Group of companies (RM266.2m) and
iv) Estimated expenses related to the proposed rights issues (RM5.7)


Balance sheet strengthened. We view the proposed rights issue as vital for ULHB to stay afloat. Note that a major portion of the proposed proceeds (65%) will be used to pare down debts. Hence, we expect balance sheet to be strengthened post-rights and provide room for gearing in future, as ULHB accelerates further developments in Nusajaya. Assuming the rights are fully-subscribed, gearing levels are expected to reduce to 0.05x (previously 0.48x).

uemland-financial-data

 

Timely but vital for future growth. In our previous discussion with management, they indicated that forthcoming developments will be driven by ULHB’s initiatives, as part of the group’s long-term goal to achieve its ‘tipping point” in 2012. This was mainly supported by the fact that the economic corridor was starved of FDIs in 2009. We view the funds raised to be an impetus towards the long-term growth of the economic corridor. Moreover, the clean-up of its
books will allow ULHB to start anew and gear-up for future developments with variable financing options. 

 

Earnings dilution effect on EPS 10/11. Post-rights, EPS 10/11 will be diluted by -33%. Despite the earnings dilution, we maintain our FY10/11 forecasts as we prefer to await stronger evidence of developments, given the lackluster pace in 2009.  We reiterate our view that future earnings will continue to be supported by strategic land sales with the group’s landbank balance of about 9,000 acres. Land demand in Nusajaya will stride with the global economy recovery and improving domestic property market. 

Reiterate NEUTRAL. Our Target Price is derived from a 75% discount to RNAV. The steep discount is based on high execution risk in relation to the completion of the economic corridor within the stipulated timeframe  and the concentration risk of the land bank in a single geographical area remains significant. 

uemland-right-issue

 

uemland-latest-price-chart

source: MIDF Research

Popular posts from this blog

Malaysia Inflation to start easing end-3Q or early 4Q2011

Image
Malaysia Inflation Rose To The Fastest Pace.
Inflation is still a major concern and we expect the upward pressure to stay in 3Q2011 coming from food & non-alcoholic and clothing/footwear in  view of the festive seasons. Impact from June’s electricity tariff hike is expected to continue. But the  upward inflation pressure can be contained from stronger RM/USD and high base comparison. Nonetheless, we expect inflation to start easing by end 3Q2011 or early 4Q2011. Meanwhile, with global uncertainties flared by euro debt crisis and slower US economic recovery lingering, it has forced AxJ policymakers to focus on growth as opposed to inflation. Rates hikes could be reaching its tail end. We expect BNM to accommodate further erosion in real returns by holding OPR at 3.00% to focus on growth. But possibilities for another 25bps hike in OPR remains, as it depends on inflation outlook. Likewise SRR hike will depend on liquidity inflow. If that happen, we expect another 50bps to 100bp…
Read more

Trump’s Win – Bark Worse Than Bite?

Image
While Asian equity markets may remain soft after the surprise of Donald Trump’s win in the US presidential election, we look forward to buying opportunities. Essentially, we do not expect significant economic repercussions on Malaysia’s economy or corporate earnings, save for the indirect impact on downward biases for the ringgit vs the US dollar and on interest rates. We highlight the trough prices of our conviction picks, as well as some buying opportunities.

WHAT’S NEW
• Near-term confidence pricked. Asian equity markets have swooned on knee-jerk reactions to Trump’s surprise win; the FBMKLCI eased 1%. Despite the major turnaround in US equities after Trump’s acceptance speech which promoted national unity and stressed on fiscal stimulus (the DJI futures initially fell by as much as 800 pts before the cash DJI remarkably recovered to positive territory), investment sentiment in Asia may remain damp and to be swayed by Trump’s anti-globalisation rhetoric. Nevertheless, we do not …
Read more

FBM KLCI Technical Outlook

Image
Stocks on Bursa Malaysia snapped a three-day losing streak to end higher last Friday on bargain hunting in selected heavyweights, which saw late fund buying of Tanaga Nasional and Malayan Banking. Bargain hunting by institutional funds supported the local market but further gains were limited by fears of a better-than-expected US third-quarter gross domestic product data which will be out later of the day. Asian stock markets were mixed as they were still affected by a flurry of major corporate earnings reports across the region and the declining oil prices. The ringgit weakened further against the US dollar at 4.1970/1020 from the 4.1810/1900 recorded on Thursday, tracking the performance of emerging Asian currencies. At close, the FBM KLCI settled at 1,670.27, up 1.24 points or 0.07%, from Thursday’s close of 1,669.03, after opening 0.58 of a point higher at 1,669.61 and moved between 1,666.97 and 1,671.72 throughout the day. On a weekly basis, the benchmark index gained 0.29 of a p…
Read more