News

MSGB has terminated the acquisition of 76.38 acres of land in Jawi in Seberang Prai, located on Penang mainland. There were 4 vendors in the SPA, and MSGB alleges that the vendor for Land 2 had breached its obligations and issue a notice to Vendor 2 to terminate the SPA for Land 2.

Consequently, the SPAs with the other 3 vendors have also been terminated as all SPAs are regarded as one and the same transaction.

As per the SPAs, MSGB is expected to be refunded its RM4.26m deposit from the vendors within 14 days.

Recall that this land parcel was to be developed into Southbay East, comprising of affordable land homes.

Financial impact

Minimal, given the guided GDV for the land is RM400m, which is small relative to its balance GDV of RM24.2bn and its unbilled sales of RM4.2bn.

Our earnings forecasts are also unaffected given the project was not expected to make much earnings contribution in FY15.

Pros / cons

While this is a minor setback from allowing MSGB to establish a foothold in the thriving property market in mainland Penang, the overall impact is minor to the group. MSGB still has its Southbay project in Penang Island and Icon Residence project in George Town with collective GDV of RM2.2bn.

Risks

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

Forecasts

Maintained.

Rating

HOLD

We still believe it is premature to turn aggressive on property developers at this point in time, given the uncertain outlook arising from macro and sector headwinds. More monitoring is needed for its projects sales this year.

Valuation

TP slightly reduced from RM2.47 to RM2.45 (maintain 20% discount to RNAV), after taking out South Bay East from its RNAV computation.

Source:Hong Leong Investment Bank Research- 23 Jun 2014