News

MSGB is acquiring 88.7 acres of leasehold land in Puchong for RM656.9m or RM170 psf, with 4 years deferred payment term, and is planning a high-rise integrated mixed development comprising residential, commercial and hotel elements, similar to Icon City, with overall GDV of RM9.3bn and to be developed over a span of 10 years. The map location is shown in Figure #3.

MSGB has also entered into an MOU with the same land owner to potentially acquire an additional 170.6 acre site nearby, also shown in Figure #3, which MSGB projects to fetch potential GDV of another RM16bn.

Financial impact

This is a sizeable project which eclipses its upcoming Seremban project (RM7.5bn GDV), with another potential RM16bn from the MOU land nearby, and will boost MSGB’s balance GDV from RM36.4bn to RM45.7bn.

We raise our RNAV estimate by 9.4% to RM3.62, after factoring in this project. If MSGB were to obtain the second tract of MOU land at similar pricing, we estimate RNAV to be boosted by a further 9.3% to RM3.96.

Pros / cons

This is a prime location in the highly matured neighbourhood of Puchong, with 5 LRT extension stations located within a 2km radius of the land, and allows MSGB to replicate the success it had with Icon City @ Petaling Jaya.

Similar to Lakeville @ Taman Wahyu, the project fronts a 160-acre lake, and MSGB will begin by launching serviced apartments in FY15, priced from RM585k onwards. We believe it will be well-received as the pricing is similar to that of Lakeville Residences, which was 85% sold on its first day of launch.

We note that MSGB is paying RM170 psf for the land, which is significantly higher than the RM124 psf Hua Yang paid for its 29.2 acre site in Puchong in Oct 2012. However, the cashflow stress should be largely mitigated by the deferred 4-year payment period. Net gearing currently stands at a comfortable 0.18x.

Risks

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

Forecasts

FY16E earnings forecast raised by 4.3%.

Rating

BUY

MSGB currently trades at 8.9x FY15E P/E vs its historical 5- year P/E average of 11.1x

Valuation

TP increased from RM2.65 to RM2.89 (maintain 20% discount to RNAV), after factoring in this land parcel.

Our new TP values MSGB at 10.6x FY15E P/E, vs. its historical 5-year P/E average of 11.1x

Source: Hong Leong Investment Bank Research - 29 Aug 2014