Trying To Make Sense Of UEM Land Holdings

UEM Land Holdings has been hogging the top turnover table in recent weeks. Who might be buying, or selling? When a counter features prominently in the volume charts, it will attract traders and speculative money, but what are they really buying into?To those who are in the mist, this used to be UEM World. It used to be a Nusajaya / Iskandar play but that focus has been harder to sell as it requires a lot of FDI, in particular from the Gulf countries and Singapore. Many MOUs were signed and there were plenty of tea parties celebrating these intentions. However, these potential investors went back to face their own niggling problems as they have to come to terms with the engulfing global credit crisis.

US-based fund Discovery Capital Management LLC has been actively selling down UEM Land Holdings Bhd based on recent available information. Discovery Capital has been cutting its shareholding in UEM Land after acquiring a 5.7% stake comprising 138.5 million on the day of UEM Land Holdings' listing on Nov 17, 2008. According to filings with Bursa, Discovery Capital has since disposed of some 9.07 million shares, reducing its shareholding in UEM Land to 5.33% or 129.43 million shares. It would not be surprising to find the fund continuing its selling down activity in recent weeks as it is significantly above the IPO price of 55 sen - is it a staged exit strategy? It could simply be a case of profit-taking as UEM Land's share price has risen sharply to around 75 sen since its opening-day closing price of 57.5 sen versus its IPO price of 55 sen. With net tangible assets pegged at 50 sen per share, the counter is currently trading at a premium.

Where is the justification for trading above its NTA? It does not even have a long enough track record. Furthermore, its growth prospects were dependent on the success of its flagship development at Nusajaya in Iskandar Malaysia, which has been fairly quiet of late. Their debt levels is questionableas well. As at the end of September 2008 it has total debts of RM772m and cash of just RM23m, or a net gearing of 62%. Taking into account the capital requirements at Cyberjaya, Puteri Harbour and Southern Industrial & Logistic Cluster - they will need to issue new shares.

The Iskandar development is still very much at its infancy, and its long gestation period meant that it would be a while before UEM Land begins to see returns from that development. UEM Land, however, appears to be continuing strongly with its venture in Iskandar, with management saying it would be completing a fund-raising exercise worth RM1.2 billion to invest in Iskandar Malaysia by next month. The loan would raise its debt-to-equity ratio to 60%, which is on par with other property companies, but property analysts said they were concerned about the cash holdings and the cash flow of the company.

To be fair, UEM Land has also tried to diversify its business by investing elsewhere, notably in Cyberjaya where it has agreed to purchase 98 acres (39.7ha) of land for RM102.49 million. It could be that the company is hedging its bets by boosting its Cyberjaya projects as Nusajaya could be delayed further. The land is being bought from Cyberview Sdn Bhd and Setia Haruman Sdn Bhd. UEM Land plans to undertake "a mixed and exclusive mid-upper and high-class secured and guarded residential development". The project should generate a gross development value of RM1.5 billion over nine years,UEM Land said.

UEM Land has about 4,500 acres in Iskandar Malaysia, with its flagship development being Nusajaya, identified as a catalytic project in the region.

The key is probably here, the company has applied to the Securities Commission (SC) for an extension of time to implement the issuance of up to 10 per cent of the issued and paid-up capital of the company. The SC's approval for the proposed issuance will expire on February 28. It is very likely that the activity is to push through the new issuance of capital. I doubt very much that it can issue the new shares very much above the NTA of 50 sen. Can you imagine if the bulk of the shares was issued at 55 sen, compared to where the current share price is 76 sen. As much as I think Nusajaya is a viable project, there may be better times to take on a position. Buyers beware.

p/s photo: Maki Nishiyama (my kind of handroll)