News

Entered into a JV with Mulpha Land for the development of two adjacent parcels of leasehold land in Mukim Bandar Damansara (Tropicana Land). The land measures ~6.41 acres and has a potential GDV of RM700m for mixed residential/commercial development. The proposed JV is expected to be completed by 4QFY13.

Highlights

Development details… Mulpha Land acquired Tropicana Land from Tropicana Corp (formerly known as Dijaya Corp) for RM116.1m. The land is situated on Persiaran Tropicana fronting the Tropicana Golf & Country Club. With a plot ratio of 4-5x, this will translate to a land cost of RM103.9- RM83.2/sq ft/plot ratio. Assuming a setback of 25%, the ASP works out to RM668.3-RM835.4/sq ft (see Figure #2).

Offer for Mudajaya… In view of the size of this development relative to Mulpha Land’s balance sheet (shareholders fund of RM112.9m and net debt of RM32.2m as of 2QFY13), Mudajaya has been offered the opportunity to partake in this development.

49% for Mudajaya… In this venture, Mudajaya will have a 49% stake (classified as associate) and the company’s outlay will be RM11.86m. The impact will be minimal for Mudajaya as it is in a net cash position of RM189.8m (35 sen/share). However, Mudajaya will be ascribing the stake in Tropicana Land at a premium given the preliminary works done by Mulpha Land and potential construction profits (see Figure #3).

Boost for property development… As of FY12, Mudajaya’s property revenue was only RM45.1m; hence this JV will be a huge boost for the division. Based on Mudajaya’s 49% stake, net development profit margin of 15% over a 5-year period with 10% discount rate, this venture works out to RM38m (6.9 sen/share) for the company.

2nd bite in construction… The project is expected to commence construction in 1QFY15, and Mudajaya will also benefit by having the potential to secure construction works associated with the development. Assuming that GDC exland cost works out to 68% of GDV – RM480m, a 5% net profit margin will translate to RM24m (4.4 sen/share).

Risks

Delay in completing the India IPP project; Regulatory and political risk (both local and abroad); Rising raw material prices; Unexpected downturn in the construction sector; and Sharp depreciation in the Indian Rupee and US dollar.

Forecasts

Unchanged pending conclusion of the deal and more detailed timing of the property launch.

Rating

BUY

Despite being positive on the property venture, we believe that Mudajaya’s share price catalyst will still be its India IPP power plant which is undergoing test firing by year end. Maintain BUY call on the company.

Valuation

TP of RM3.53 based on SOP valuation maintained (see Figure #4).

Source:Hong Leong Investment Bank Research - 2 Sep 2013