MB World proposed to undertake the development rights on 6.3 acres of freehold land at Plentong, Johor for RM24m. An apartment project is planned with an estimated GDV of RM176m, targeted for launch in 2H19. We are neutral on the proposal as we opine that high rise projects in Johor may not garner the level of interest as landed properties given the oversupply situation of the former. The project increases the group’s total GDV by 4.8% with an estimated NPV that is to elevate our RNAV by 2.1%. We leave our earnings unchanged for now as we elect to be on the conservative stance. Maintain BUY with unchanged RNAV-derived TP of RM2.85.

NEWSBREAK

MB World has proposed to undertake the development rights on 6.3 acres of freehold land at Jalan Sierra Perdana, Plentong, Johor for RM24m, to be paid in three tranches. MB World intends develop 406 units of apartments with an estimated GDV of RM176m, targeted for launch in 2H19.

HLIB’s VIEW

Neutral on the proposal as we opine that high rise projects in Johor may not garner the same level of interest as landed properties given the oversupply situation of the former. However, the development right is expected to increase the group’s effective GDV by 4.8% to circa RM3.9bn. Assuming an EBIT margin of 18%, the project’s NPV is estimated at RM14.6m or RNAV of 9 sen per share (2.1% of our TP).

Land cost. The implied land cost to MB World is circa RM88.0 psf. The implied land price on a psf basis looks fair and the land cost to estimated GDV is at 13.6%. No huge initial outlay is expected as opposed to an outright landbank acquisition. Net gearing is expected to increase to 0.18x from the current level of 0.06x should the payment be incurred in FY18.

Location. A high rise project with a GDV of approximately RM176m is planned on the Land, which is located along Jalan Sierra Perdana 6/2, within Sierra Perdana, Johor Bahru, Johor which lies about 23.0 km due north-west of Johor Bahru city centre and easily accessible from the Johor Bahru city centre via the Tebrau Highway, Eastern Dispersal Link (EDL) Highway.

Forecast. The project is expected to contribute positively from FY20 onwards. However, we elect to be more conservative to not impute the impact of the proposed development into our model given the overall weak outlook in Johor, especially for high rise projects. Maintain BUY with unchanged TP of RM2.85 based on unchanged 35% discount to RNAV of RM4.39. We like MB World given its first mover advantage to capture the spill over growth effect from the RAPID project in Pengerang. Earnings growth is well supported by the unbilled sales and strong take-up of newly launched projects. Besides, potential increase in dividend following the projected strong earnings may be on the cards.

Source: Hong Leong Investment Bank Research - 26 June 2018