Highlights

Syarikat Prasarana Negara Bhd (Prasarana) has announced two more mixed property development deals estimated to be worth RM1.1bn, located along its light rail transit (LRT) extension project in Awan Besar and Puchong (adjacent to IOI Mall) by mid-2013, with indicative GDV of RM600m and RM500m respectively (Source: Star Biz).

Besides these two locations, there are 11 more parcels of land earmarked for property development along its future and existing LRT stations, namely: Jelatek, Kelana Jaya, Putra Heights, Pandan Jaya, Pandan Indah, Cempaka, Titiwangsa, Glenmarie, Kinrara, Bandar Puteri and Sentul.

Separately, Prasarana also plans to relocate its bus depot in Melawati to Batu Caves for a mixed-development project which includes high-end condominium on the 2.83 ha site.

Thus far, Prasarana has already inked agreements with several developers for joint mixed-property developments along its LRT extension lines in Dang Wangi, Taman Tun Dr Ismail (awaiting DO approval), Ara Damansara and Brickfields (Brickfields GDV: RM1.2bn). Financial Impact

Difficult to quantify, but the macro scenario is applicable to Malaysian developers across the board, in our view.

Pros/Cons

The rise of the high-rise? Our sector view has been largely in favour of the landed segment, over high-rise projects. Prasarana has set the change in motion, as the doorstep access to the LRT network will prove irresistible to buyers,

RM1,000 psf benchmark… Existing high-rise launches in KL City Centre and Petaling Jaya have been challenging the RM1,000 psf price point (such as Mah Sing’s M-City and Icon City), and we envisage a similar possibility for Prasarana sites in nearby locations such as Jelatek and Kelana Jaya.

Who to share the pie? Given the high level of desirability of these sites, we expect Prasarana to have the luxury of choice and partner with only the most established and reputable developers, such as SP Setia, Mah Sing, Glomac, and UEM Land. We believe Prasarana will be likely to diversify.

Re-iterate neutral stance. While long-term positive, the gestation period will be have limited near-term impact. We remain concerned with Malaysia’s political risk for now.

Risks

Slower than expected economic growth; rise in NPL ratios due to loss of holding power by Malaysian home buyers.

Rating

NEUTRAL

Positives: Asset reflation theme remains intact; the affordable segment remains untapped; Johor to start outperforming after years of neglect and under-performance.

Negatives: Slowdown in demand for mid/high end segment; banks exercising more restraint and prudence in processing applications and granting approvals.

Top Picks

Glomac: TP RM1.16, offering the growth story while trading at just 6.8x FY13E P/E, but liquidity remains lacking.

Source: Hong Leong Investment Bank Research - 03 Apr 2013