Right move: The JV will allow UEM Sunrise to diversify its property projects out of Johor where it has a huge landbank.

PETALING JAYA: The joint venture (JV) between UEM Sunrise Bhd and WCT Holdings Bhd to develop a RM3bil project in Serendah, Selangor bodes well for the companies but analysts are maintaining their estimates as income contribution could only happen in 2018.

Analysts tracking the stocks said the JV was a good move for UEM Sunrise to diversify out of the Johor property market where it has a huge landbank.

At the same time, the deal was deemed positive for WCT as it would be able to pare down its gearing.

“This will allow WCT to reduce its gross debt to RM2.44bil from RM2.58bil currently, which implies net gearing falling from 0.73 times to 0.68 times,” said UOB KayHian Research in a report.

To recap, UEM Sunrise had signed an agreement with WCT to buy a 50% in Jubilant Courtyard Sdn Bhd, the land owner of the 608-acre freehold land.

WCT could recognise about RM205mil in disposal gains and receive RM140mil in cash, UOB KayHian Research added.

As for UEM Sunrise, its gearing is estimated to increase to 0.37 times from 0.34 times.

The deal is expected to be completed by the second quarter next year.

The project, that would focus on low- to mid-end landed properties, was expected to be launched by the fourth quarter of 2017 over a development period of 10 years, according to Maybank IB Research.

The price tag for UEM Sunrise’s purchase was RM214.88mil, which worked out to be RM16.20 per sq ft.

Maybank IB Research noted that the implied land cost was fair compared with the current asking prices of RM16 to RM24 per sq ft in the area.

“The acquisition is also in line with UEM Sunrise’s plan to reduce its dependency on its Iskandar Malaysia landbank and to diversify its earnings base,” said the research house.

UEM Sunrise derives some 80% of its revenue from the sale of Johor properties.

In a separate note, MIDF Research said a recent transacted deal in March 2015 at Seksyen 20, Bandar Serendah was done at RM12.92 per sq ft. “Although UEM Sunrise deal was valued higher at RM16.21 per sq ft, this could be due to better location as it is closer to the North South Highway.”

Maybank IB Research also said it expected RM16.9mil net profit per year assuming a pre-tax profit margin of 15% for UEM Sunrise.

UEM Sunrise closed one sen higher at RM1.14 with a turnover of 8.35 million shares while WCT was unchanged at RM1.50 with 1.15 million shares traded.