UMLand - A forgotten gem (HLIB)

Price Target: RM 2.87

Share price: RM 1.87

Highlights:

 Forgotten Johor play with 1,300 acres of development land in Iskandar Malaysia, and still trading at single digit P/E and 0.5x P/B.

 Two-pronged growth strategy via integrated townships and high-end niche projects.

 Strong JV partners such as Capitaland, UEM Land, Bolton and Tradewinds allow them to continuously expand landbank and roll out new projects.

 Value-enhancing initiatives in Seri Alam, with the entry of HELP College, Masterskill Universifty, Raffles International School, UiTM and KL University.

 Strong presence in KL via the Suasana brand.

Catalysts:

 Major earnings growth in 2012 with the launch of Waterfront @ Puteri Harbour and Matex in conjunction with earnings contribution from Suasana Bukit Ceylon.

 Improvement in share liquidity from increasing investor awareness of UMLand’s growth story.

 Landbank expansion via new strategic partnerships.

Risks:

 Execution risk for Jalan Mayang project.

 Earnings volatility due to very few active projects.

 Relatively lacking in free float and liquidity.

Forecasts:

 Strong earnings growth of 30% expected in 2012, driven by launch of Puteri Harbour in Q3 2011, strong takeup rates for Suasana Bukit Ceylon and improving sales in the flagship Seri Alam development.

 RM495m worth of launches this year.

Rating:

 Initiate with a BUY

 Positives: 67% discount to RNAV; strong upside to earnings as Jalan Mayang and Pulai Jaya have not been factored in; consistent dividend payout, even in loss-making years; major beneficiary of Iskandar Malaysia story; net gearing is less than 0.1x.

 Negatives: Potential earnings volatility and lack of liquidity.

Valuation:

 Trading at 67% discount to RNAV and single-digit P/E; timing is ripe for investors to enter before earnings and share price re-rating take place.

 57% upside to our target price of RM2.87 (based on 50% discount to RNAV), inclusive of dividends. BUY