This article first appeared in The Edge Malaysia Weekly on December 10, 2018 - December 16, 2018

SINCE Khazanah Nasional Bhd announced its plan to hive off 16% of IHH Healthcare Bhd to Mitsui & Co Ltd for RM8.42 billion last month, market talk has been rife that property developer UEM Sunrise Bhd could be next on the list of companies in which the sovereign wealth fund plans to pare down its shareholding.

According to sources familiar with UEM Sunrise, there are a number of suitors looking to take control of the company by buying a block of shares from Khazanah. However, The Edge understands that Khazanah, which has 66.06% equity interest in the property company, has not put up its block for sale and is looking at the offers as part of a due process.

“I can guarantee that Khazanah did not put [UEM Sunrise] up for sale … it’s just that when offers or proposals come in, it has no choice but to weigh them, deliberate on them and look at the merits and demerits to the shareholder before making any decision,” says a source.

The only other substantial shareholder in UEM Sunrise is pilgrim fund Lembaga Tabung Haji, which has 7.75% equity interest.

As for the acquirers of Khazanah’s stake, one name that has consistently popped up is that of garment outfit Jakel Group, which has a property arm Jakel Land Sdn Bhd, but this interest could not be confirmed at press time.

Checks on RAM Credit Information reveal that Jakel Land is 33.33%-controlled by Mohamad Faroz Mohamed Jakel, while Mohamed Izani Mohamed Jakel, Mohamed Nizam Mohamed Jakel, Luqman Mohamed Jakel and Abdul Shiraz Mohamed Jakel each control 16.67% of Jakel Land. However, until end-June 2015, the company had generated no revenue and it is likely that its financials have not been updated.

Earlier in the year, it was reported that Jakel was one of many companies that supposedly acquired 64 parcels of land from City Hall at cheap rates. Jakel was said to have acquired five choice parcels.

News reports have it that Jakel had acquired a 12.34-acre parcel in Cheras for RM133.49 million in November 2015, forking out RM248 per sq ft, and in September last year, it was said to have acquired a 19.14-acre parcel of land fronting Jalan Duta near Istana Negara in Kuala Lumpur for RM646 million, or RM774.90 psf.

Other than Jakel Land, a few prominent individuals in Corporate Malaysia are also said to be interested in UEM Sunrise but their names could not be ascertained at press time.

At its close of 70 sen last Friday, UEM Sunrise had a market capitalisation of RM3.18 billion. Thus taking over a 51% block, pegged at a 20% premium, would entail the buyer forking out RM1.95 billion and a waiver from making a general offer. Sans the waiver for the general offer, the new shareholder would have to part with RM3.82 billion for UEM Sunrise.

In the event the new shareholder wants to take up 33% to ensure that a general offer is not triggered, he or she will have to fork out RM1.26 billion, including a 20% premium.

It is worth noting that the stock has shed about 30% of its value over the past year, and underperformed the Bursa Malaysia Property Index by more than 7.5%.

Nevertheless, as at end-September this year, UEM Sunrise had net asset per share of RM1.56, which is more than double its share price, which would indicate that it is unlikely that Khazanah will let go of the property developer based on its depressed share price.

For the nine months ended September, UEM Sunrise posted a net profit of RM260.25 million on RM1.29 billion in revenue. In contrast to the previous corresponding period, net profit was up more than 66% despite revenue dipping by 17%.

UEM Sunrise’s earnings per share for the nine months ended September was 5.56 sen.

In the notes that accompany its financials for the year, UEM Sunrise says, “The group recorded higher operating profit for the cumulative period compared with the preceding year’s due to significantly higher contribution from land sales in Iskandar Puteri with its lower cost base, higher contribution from international projects, gain from development cost savings for projects and lower operating expenses.”

As at end-September, the company had cash, bank balances and deposits of RM715.57 million, while on the other side of the balance sheet, it had short-term borrowings of RM2.78 billion and long-term debt amounting to RM2.01 billion.

UEM Sunrise forked out RM71.55 million in finance costs for the first nine months of this year.

It is also worth noting that UEM Sunrise had RM1.86 billion in retained profits and RM4.93 billion worth of land held for property development.

Checks on the annual report for FY2017 indicate that the company has 9,816.9 acres in Johor, close to 600 acres in Kuala Lumpur, Selangor and Negeri Sembilan, 2,405 acres in Tapah, Perak, and pockets of land in Melbourne, Australia, and Durban in South Africa.

To put things into perspective, the estimated gross development value for the 600 acres in the central region is RM14.8 billion, according to the annual report, which would indicate that the GDV for its total land bank could be much higher.

In a research report at the end of last month, CIMB Investment Bank Research had a target price of RM1 per share for the developer with an “add” call.

CIMB adds, “We expect stronger earnings in FY2018/FY2019F, driven by contributions from overseas projects. Its current valuation appears attractive as well, at a 52% discount to its current net asset per share of RM1.56. We maintain our target price at RM1, still based on a 70% discount to RNAV [revised net asset value].”

CIMB has forecast that UEM Sunrise will rake in RM225.9 million in net profit on RM2.75 billion in revenue for the current financial year ending Dec 31, and forecasts the property group registering a net profit of RM254.8 million on revenue of RM2.73 billion for FY2019.

Considering the positive outlook for UEM Sunrise, is Khazanah likely to sell its block of shares in the prominent developer?

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.