Results

1Q13 PAT rose 23% yoy to RM47.8m, making up 49% and 37% of HLIB and consensus estimates respectively.

Deviations

Due to exceptionally strong earnings recognition in 1Q13, we believe mainly arising from a strong surge in sales of completed high-rise residential units in KLS City.

Dividends

None.

Highlights

Yoy: KSL’s revenue and PBT both rose 80% yoy, mainly driven by the higher take up rate and progress billing for its flagship projects, mainly KSL City in Johor Bahru, as well as earnings contribution from its hotel operations in KSL City.

Qoq: PAT rose >20% qoq, with management attributing it to: (1) Positive change in sales mix and percentage of completion of the existing main on-going and completed mixed development projects in Johor Bahru; and (2) Earnings contribution from hotel operations in KSL City.

No dividends declared… Management continues to limit payout to shareholders, we believe in an effort to preserve funds for (1) working capital needs for its flagship RM2bn development in Klang, and (2) potential land acquisitions, as its relatively clean balance sheet (only 0.16x net gearing) offers it close to RM400m of gearing headroom before net gearing hits 0.5x. Therefore, we maintain our forecast of zero dividends going forward.

Risks

Execution and demand risk for Bandar Bestari, as the group's future earnings will be highly reliant on this flagship project; an overall downturn in the property sector.

Forecasts

We raise our FY13-15 forecast by 12-18%, to factor in the Klang project as well as stronger earnings contributions from the sales of completed units in KSL City apartments and other projects in Johor, which in turn reflects the strong demand for properties in Iskandar Malaysia.

Rating

BUY

• Positives: (1) Good proxy to IDR growth story; (2) new expansion to Klang Valley; and (3) growth in recurring investment income.
• Negatives: Lack of liquidity; project concentration risk.

Valuation

Given the strong re-rating in the property sector, we now trim our discount to RNAV from 50% to 20% and raise TP from RM1.54 to RM2.73. Upgrade to BUY.

Source: Hong Leong Investment Bank Research - 31 May 2013