News

• Buys land from UEMS. Kimlun announced that it has entered into a Sale and Purchase Agreement with UEM Sunrise (UEMS) for the former to buy a 11.734 hectares of freehold agriculture land from the latter for RM82.1m.

• Land details. The said land is located within Iskandar Puteri and is near Horizon Hills, Eco Botanic and Taman Nusa Sentral. It is roughly 5km (by road) north-west of Kota Iskandar. The land has been zoned for commercial use and Henry Butcher Malaysia has appraised the land at RM83m.

Comments

• May be on the high side. The pricing for the land works out to be RM65psf. Our property analyst feels that this may be on the high side when compared to the recent transacted price of RM43.4psf when UEMS sold a parcel of land to Country View. It is nonetheless noted that the land that Kimlun is buying is much smaller in size.

• Minimal development details. Kimlun intends to develop commercial properties on the said land but no further details were given.

• Impact to net gearing. As of 3Q17, Kimlun’s net gearing was low at 5.5%. On a proforma basis, the land purchase would increase its net gearing to 19.6% which we deem as manageable.

• Minimal property contribution now. As of 9M17, property contributed a minimal 2.5% to revenue. Kimlun has thus far only undertaken 2 developments, with take up rate at 90% for The Hyve (launched 2012) and 50% for Pekan Nenas (launched 2015).

Risks

• Slow turnaround for this acquired land.

Forecasts

• Unchanged pending more details on the development plans for the land.

Rating

Maintain BUY, TP: RM2.65

• Although we forecast earnings to decline by 22% this year, we are positive on a recovery in FY18 (+20%) underpinned by its strong job wins leading to a record high orderbook.

Valuation

• Our TP of RM2.65 is based on an 11x P/E multiple ascribed to FY18 earnings (mean: 12x).

Source: Hong Leong Investment Bank Research - 21 Dec 2017