We recently visited Johor to investigate its populationgrowth dynamics since many of the 2012 'tipping point' elements of IskandarMalaysia (IM) are coming on line. Although we are bearish on the overallMalaysian property sector, our findings reaffirmed our bullish stance on theJohor Property Market.  Our Top Pick for developersremain as UEMLAND (OP; TP: RM2.65) because it has the largest exposure in Johor(c. 50% sales from Johor) compared to the others under our coverage (<30%sales from Johor). IJMLAND's (MP; TP: RM2.28) Sebana Cove project will be acatalytic one but will only kick off in CY13 even as its overall sales isexpected to slow down due to softer Klang Valley and Penang sales. Although Johorsales have picked up for township developers like SPSETIA (Accept Offer@RM3.95)and MAHSING (UP; TP: RM2.05), their overall sales are still heavily driven bythe softer Klang Valley market. E&O (UP; TP: RM1.49) will also be another majorbeneficiary given its Wellness Center @ Medini (GDV c.RM3.0b), which is a JV betweenE&O (50%), Khazanah Nasional (25%) and Temasek Holdings (25%); however, webelieve significant sales from the project will only be from FY14 onwards as itis still in the planning stage. Our Construction Analyst meanwhile remainsbullish on WCT (OP; TP RM3.85) as Iskandar region will be one of key driversfor its construction order book replenishment in 2012.   

Mass housing play.Our trip's main emphasis was on mass market housing, allowing us to determine thetrue population growth potentials, or IM's final puzzle piece. We visited thefollowing developers projects which are in the 'affordable' price range of<RM500,000/unit and the upgraders market of RM500,000-RM1m/unit; 1)'Affordable': UEMLAND (Nusa Bayu, Nusa Idaman), WCT (1 Medini Residence) andIJM Land (SuriaMas@Larkin, Permas Jaya); 2) Upgraders: SP Setia (Setia Eco Cascadia),  IJM Land (Nusa Duta). 

Strong demandobserved in the mass housing segment of <RM500,000/unit. Demand has beenlargely driven by Malaysians working in Singapore, followed by Singaporeans.Johor's residential demand is more organic as the bulk of the mass housingsegment is driven by first home owners, followed by upgraders, and this issupported from the visible occupancies of the ongoing townships. We alsogathered that a sizeable number of Malaysians working in Singapore areconsidered low to mid income earners in Singapore. However, their strongerpurchasing power, on the back of favourable Singapore Dollars, enables them topurchase Malaysian mid to mid high-end residentials. It also explains why theimpact of the tighter mortgage evaluation criteria appears less severe in Johorvs. Klang Valley. We would like to highlight that UEMLAND will be ramping outits mass housing products with Nusajaya West (GDV RM18b) in 2H12.

It is all comingtogether. Legoland's development appears to be on track for its grandopening in Sep-2012, and tickets (including annual pass) are being soldcurrently. Educity components such as NuMED that has recruited two years' worthof students, while the other upcoming Educity components like MarlboroughCollege, Trust School, University of Southampton and common facilities (e.g.stadium & sports complex), will be delivered by end CY12. Major highwaysand interchanges are also all in place, reducing travel time by 30%-50% whencompared to our earlier 2007-08 visits. 

Sebana Cove is a'windfall' project. IJMLAND's project is located on the eastern side ofJohor and forms a part of IM and sits above an Oil & Gas (O&G)goldmine. Including PETRONAS' RAPID portion, total land dedicated for O&Gamounts c.13,000ac, catering to local and international O&G players likeDialog (OP; TP: RM2.80), Gulf Asia Petroleum and potentially China PetroleumCorp. We reckon Sebana Cove will be a major earnings driver for IJMLAND (launchlikely in CY13) as there are very few developers in the area with all otherland acquisitions in Desaru/Pengerang having been frozen by the authorities dueto the O&G developments. We reckon Sebana Cove's current GDV of RM1.4b istoo conservative and we estimate it could rise up to RM2.6b. 

Developers under ourcoverage are upbeat on Johor. IJMLAND believes its FY13E Johor sales couldhit historical highs of RM300m (FY12E c. RM200m); this is helpful since itsPenang sales will likely be softer. Other established Johor developers likeSPSETIA and MAHSING are also reporting strong positive trends. For the lastfinancial year, Johor residential projects made up 29% of annual sales for SPSetia and 6% for Mah Sing.

Source: Kenanga