News

To acquire a 99-year lease over 2 contiguous parcels of freehold commercial land measuring 5.31 acres (Plot A14: 2.77 acres; Plot A15: 2.54 acres) for a mixed development project in Medini North for RM31.057m from Iskandar Investment Bhd. The land has a permitted GFA of 926,688 sq ft which works out to a plot ratio of 4x, translating to RM33.51/sq ft/plot ratio.

The proposed development is expected to commence within 24 months with a development period of 4 years. The purchase consideration will be paid by 10 instalments over a period of 4 years.

Highlights

Development continuity... We are positive on Kimlun’s latest land acquisition following their successful maiden property launch, the Hyve in Cyberjaya, which saw the first of the two towers fully booked (51% stake, GDV: ~RM200m). The Medini development is expected to commence in 2015, and will provide Kimlun the continuity in terms of property development profits.

Fair land price... The acquisition price of RM33.51/sq ft/plot ratio is slightly lower than the range of the recent transacted land price of RM35-36/sq ft/plot ratio in the area.

27 sen/share... Adjusting for an efficiency ratio of 70%, net saleable area works out to ~650k sq ft; and assuming an ASP of RM700/sq ft (Medini’s ASP is ~RM600-800/sq ft), the GDV works out to ~RM450m. Based on a development period over 4 years, 20% PAT margin and 10% discount rate, this venture works out to 27 sen/share for Kimlun.

Favourable payment... Assuming an outright cash purchase, net debt will rise to RM156m from RM125m. Hence, net gearing will climb to 58% from 47%, which is still palatable. However, the acquisition has a favourable payment structure which matches income cashflow with outflows or works out to an average yearly payment of RM7.8m, thereby reducing land holding cost.

Risks

Execution risk; Regulatory and political risk (both local and abroad); Rising raw material prices; and Unexpected downturn in the construction and property cycle.

Forecasts

Unchanged pending further clarity on timing of launches.

Rating

BUY

• Positives: (1) Bigger than expected contract wins. (2) Recovery in earnings margin. (3) Contribution from Cyberjaya property development.
• Negatives: (1) Sharp slowdown in the property sector which may affect existing property-related project. (2) Longer than expected gestation period of new manufacturing facilities.

Valuation

• Maintain TP of RM2.18 based on unchanged 10x FY13 earnings.

Source: Hong Leong Investment Bank Research - 29 Mar 2013