News

The master plan for the proposed township of Kwasa Damansara has finally been presented to the Selangor State Government for evaluation and approval. The development over 2,330 acres is projected to generate a GDV of RM50bn over the next 20 years.

Highlights

It is finally here… We are POSITVE that after two years of preparation works, the Rubber Research Institute Malaysia (RRIM) land in Sungai Buloh is finally ready for development and the construction sector will benefit from the jobs flow emanating from this new township.

First slice… As the RRIM land is still “raw”, earthworks and common infrastructures will have to be built first in order to unlock value. Hence, we believe that the key beneficiary for the estimated RM1bn civil works packages will be WCT (HOLD; TP: RM2.41) and MRCB (BUY; TP: RM2.06).

Second bite… The secondary catalyst will be to jointly develop RRIM’s land parcel. Over 150 developers have submitted for pre-qualification exercise and only 60 companies will be shortlisted whereby they will be ranked in 3 Tiers.

Tier-1 developers are companies with paid up capital or SHF of at least RM1bn while Tier-2 companies have paid up capital or SHF of at least RM300m. Tier-3 developers are Bumiputera companies with paid up capital or SHF of RM1m and above.

We believe that the likes of IJM (BUY; TP: RM6.57), Sunway (BUY; TP: RM3.35), WCT and MRCB will be key development partners for this new township.

Tenders in Feb… Tenders for development of Phase I will be called in Feb-14. The first parcel of 64 acres will be developed into a town centre and transport hub in partnership with Tier-1 developers, which comprises 70% commercial and 30% residential components. In addition, residential plots of 10-20 acres will be tendered out and maintained in sizes to ensure supply and demand equilibrium.

RM187/sq ft… Based on the RM11bn projected land sales for 1,350 acres, land cost will work out to RM187/sq ft for participating developers. We believe that the price is fair as land prices in Kota Damansara is selling for RM150-180/sq ft.

Risks

Execution risk; unexpected downturn in the construction and property sector; rising raw material prices; and political and regulatory risks.

Rating/ Valuation

NEUTRAL

Maintain NEUTRAL on the construction sector in view of the imminent delays of Government-related projects, slowdown in the property sector, coupled with greater scrutiny from the opposition party on mega projects.

Top Picks

Top picks in order of preference are:

• IJM (BUY; TP: RM6.57); and
• Sunway (BUY; TP: RM3.35)

Source: Hong Leong Investment Bank Research - 16 Jan 2014