News    IJMLAND and Lite Bell Consl. S/B are forming a 51:49 JV company to acquire a 999-year lease on a 2.7 ac site on Royal Mint Street, London, UK for GBP20.0m (c.RM98.4m). It comes with development consent for c.0.65m sf of GFA and is strategically situated above the National Rail and DLR railway lines (refer overleaf for location). The guided project working capital is GBP25-30m.

Comments          We are positive on the venture as the group is now seeking new earnings growth avenues in overseas given its already high earnings base in Malaysia. The guided GDV is GBP280m (RM1.4b). The project will see mid- to high-end apartments with a guided ASP of GBP1000-1100psf. We reckon the guided GDV is still extremely conservative (refer overleaf). We opine that land cost is fair, based on the gross margin guidance of c.25%.

There are no issues with the financing of the project by IJMLAND. We expect the group's net gearing to inch up to 0.1x from a 4Q12 net cash position of 0.1x, assuming a 70:30 debt-equity financing of the land and a GBP30m working capital.

Outlook               The project will only be launched in 4QFY14, implying significant earnings contributions from FY15 onwards. In the short to medium term, the sales drivers will be from The Light and its stable of mass housing projects (Shah Alam 2, S2@Seremban, Johor projects) plus its long-awaited township, Rimbayu (a.k.a. Canal City), which is slated to have a GDV of RM11b. We understand Rimbayu's launch preview could take place this month. Management is targeting FY13E sales of up to RM1.5b.

Forecast               There are no material changes to our FY13-14E earning as explained above, based on sales targets of RM1.5b-RM1.6b.

Rating   Maintain OUTPERFORM

More affordable products are coming on line, with the company being seen as one of the most 'sustainable' developers. Its project catalysts (e.g. Rimbayu, Sebana Cove and more overseas ventures) will excite investors in our view.

Valuation      The project adds 3 sen to our FD SoP RNAV. We have also updated our RNAV to reflect the updated project figures. The overall total impact is a 7% increase in our FD SoP RNAV estimate to RM3.05.

We are raising our TP to RM2.75 (from RM2.64) on a similar 10%* discount to our updated FD SoP RNAV of RM3.05 above.

Risks      Unable to meet sales targets.

Delays in launches of its catalyst projects like Canal City and Sebana Cove. Sector risks, including negative policies.

Source: Kenanga