News

MSGB has acquired 6.55 acres of land in Sg Buloh for RM85m cash (RM298 psf) from Intramewah Development Sdn Bhd. The land is located diagonally opposite the upcoming MRT station next to the Rubber Research Institute of Malaysia (RRIM) land which is the first MRT station after the Sungai Buloh terminal (see Fig 1), to be developed into a mixed integrated development known as D’sara Sentral (DS; GDV: RM800m).

Financial impact

We estimate DS to contribute 11.4 sen / share to RNAV, and for earnings contribution to commence in FY14.

Pros / Cons

MRT story… We regard the RM298 psf land cost as reasonable due to scarcity of prime land next to the upcoming MRT line, in addition, the RM85m land cost makes up just 11% of DS’ RM800m GDV.

The return of the high-rise… Following our sector report yesterday regarding Prasarana’s upcoming ‘rail plus’ developments, DS comes in a similar vein, and we expect a number of new projects in KL in the coming months with a similar theme of easy access to public transportation.

Right product, right timing… We expect strong buyer interest given a number of favourable factors: (1) The scarcity of development land close to the upcoming MRT project; (2) A supply shortage of mass market products in property hotspots in the Klang Valley; and (3) An increasing trend of preference towards smaller sized residences within well-planned integrated projects.

Risks

Slower than expected sales; execution risks for projects; inability to replenish landbank.

Forecasts

After factoring in the new diluted share base of 1.12bn, FY13-15E EPS is now diluted by 6-9%. The impact from DS is less than 1% impact to FY13-14 forecast.

Rating

HOLD

Strong proxy to Iskandar Malaysia; remains ahead of the curve in the property sector.

Valuation

Having factored in the rights issue (RI), future impact from DS and future new GDV, our RNAV is diluted by 8.7% to RM4.00. We have imputed RM2.1bn of new GDV from future land acquisitions, based on: (1) RM397m RI proceeds less RM85m for the DS acquisitions; (2) 15% land cost / GDV assumption. MSGT itself is guiding for more than last year’s RM5.9bn GDV in new acquisitions, hence our assumptions could be on the conservative side.

We have also slightly reduced our discount to RNAV from 45% to 40% to reflect: (1) Rapid landbank expansion and fast project turnaround times; and (2) Positive reaction to newsflow on its exposure to Iskandar Malaysia. Our TP is marginally reduced from RM2.41 to RM2.40. Due to recent run up in share price, we downgrade to HOLD as total return is now less than 10%.

Source: Hong Leong Investment Bank Research - 04 Apr 2013