• Management sees bright outlook. In its 2Q16 review, KSL maintains a positive outlook despite the challenging operating environment, driven by its aspirations to continue developing residential and commercial properties in Johor Bahru, Segamat, Kluang and Muar, ranging from deluxe residences with top-class finishes and facilities to small-to-medium sized units with practical and efficient layouts, supported by its ~2,400 acres of land held for current and future development which are strategically located in the District of Johor Bahru, Batu Pahat, Kluang, Segamat, Muar, Mersing, Klang and Kuala Lumpur. Most of these properties are available for immediate development as they have been granted approval for subdivision. These will help the Group to sustain its medium to long term development and profitability.

• Besides, the Group is in the midst of developing the land held in Klang with an estimated gross development value of RM10bn comprising ten (10) main development phases. The site is strategically located along Jalan Klang-Banting and is 15 minute drive from the Klang town centre.

• Values emerge after plunging 35% from 52-week high and trading at 46% discount to its book value. Following recent share prices rout, values are beginning to emerge for long term investors as KSL is currently trading at 64% and 17% discounts to its peers’ FY16 P/E and latest book value/share (BVPS), respectively. We believe such steep valuations have priced in most of the negatives and provided sufficient margin of safety to cushion further sharp share price decline.

• Mild signs of bottoming up. After hitting a 52-week low of RM1.08 (13 June), KSL has been gradually moving higher to end at RM1.13 yesterday, supported by bottoming up indicators. A successful breakout above immediate resistance of RM1.16 (100-d SMA) will lift prices higher towards RM1.20 (50% FR) and our LT objective at RM1.28 (61.8% FR). Key supports are RM1.10 and RM1.08. Cut loss at RM1.06.

Source: Hong Leong Investment Bank Research - 7 Sep 2016