After  seven  years  of  development,  i-City's freehold  property  development  and  leisure  divisions  are  starting  to  show robust  growth,  as evidenced by a 592% growth in I-Bhd's 9MFY12 earnings. With further sales recognition expected from the RM232m GDV i-Residence (70% sold, 10% pending signing of SPAs) and the RM64m GDV i-SOVO (100% booked) launched last year, coupled with the impressive estimated 4m tourist arrivals to the theme parks in 2011 and 2012, its earnings are expected to grow further in the 4QFY12 and by another 128% in the  FY13.  The  completion  of  the  i-City  Interchange  (two  ingresses  and  one  egress)  and  a  success  in  the  potential  joint  venture  with  the Thailand's largest retail developer, Central Pattana PCL, to build an RM500m shopping mall should help increase property value and sales, improve  tenancy  rate  and  attract  more  tourists  into  i-City.  The  stock  is  still  trading  below  its  RM1.58  NTA/share  as  of  30  Sept  2012.  Our price target is pegged to a 10x FY13 PER, translating into 1.4x P/NTA and 3.6% net dividend yield in FY13.

Fast-growing earnings contribution from property development. Besides greater sales recognition expected from i-Residence and i-SOVO in FY13,  i-Bhd  plans  to  launch  RM300m  GDV  SOHO  phase  1  in  the  1QFY13  after  Chinese  New  Year.  I-Bhd  will  also  be  launching  its  maiden RM500m GDV freehold luxury condominium, Grand i-Residence, in Jalan Changkat Kia Peng, Kuala Lumpur, sometime in the 3Q/4Q this year, should it obtain the final approval from the authority as scheduled.    

Competitive  advantages  of  i-City. These includes (i) an increase in its plot ratio up from 1:3 to 1:5 lifted the gross development value (GDV) from  RM3bn  to  RM5bn  (ii)  a  24-hour  operation  for  approved  outlets  and  activities  to  support  night  tourism  (iii)  a  21-year  temporary occupation license for about 30 acres of neighboring land which can be used to create gardens and car parks (iv) a MSC Malaysia Cybercentre status development (v) i-City Interchange which is expected to be completed by year-end (vi) a potential JV to build a RM500m shopping mall (vii) located in a mature neighborhood, e.g. close proximity to primary and secondary schools, university, AEON, Klang Parade, etc. (viii) very near to New Klang Valley Expressway (NKVE), federal and Selat Klang highways, and (ix) a freehold land.
 
Earnings from leisure division increasing fast too. I-City's theme parks have four precincts, namely: (i) City of Digital Lights with millions of LED lights (ii) SnoWalk with ice sculptures in a -5 Celsius environment (iii) WaterWorld (opened in Nov 2012) with ASEAN's first Tornado ride and cool splashing games (iv) FunWorld which features Trick Art Museum (opened in Nov 2012), i-Kidz children playing zone (opened in July 2012), etc. As many main attractions in the theme parks only opened in the 2HFY12 and RM10m-15m capex to be spent in FY13, earnings from this division are likely to grow further this year. In FY13, I-Bhd plans to add two new attractions in WaterWorld, refresh the ice theme for SnoWalk, install new LED lights and create two new major attractions (> 10,000 sq ft floor space) for FunWorld. Supported by Tourism Malaysia, i-City, which has attracted millions of local tourists by hosting various major events including MTV World Stage Live and Miss Tourism International, may also see strong improvement in foreign tourist arrivals next year in conjunction with "Visit Malaysia Year 2014".  

Attractive dividend expected. I-Bhd has been paying dividends for the last few years. As the company still has not paid any dividends for FY12, we expect it to declare 4 sen single-tier dividend in the 4QFY12 results, reflecting our expectation of the company posting the second-highest full-year earnings since current management took over the company in 1999. Considering its RM14.8m net cash and zero borrowings position as of 30 Sept 2012, we expect the company to achieve at least  30% net  dividend payout  ratio in FY13. That means whoever invests in I-Bhd now is expected to enjoy 12 sen single-tier dividends for the next 18 months, translating into an 8.5% net dividend yield at the current price.

Appendix II : Management & shareholdings    

Tan  Sri  Datuk  Lim  Kim  Hong. Tan Sri Datuk Lim, the founder of I-Bhd, is currently the executive chairman of i-City. He directly and indirectly owns  about  75%  stake  in  I-Bhd  through  Sumurwang  SB  and  Sumur  Ventures  SB.  Sumur  Ventures  owns  more  than  90%  stake  in  Sumurwang and  Tan  Sri  Datuk  Lim  has  more  than  90%  shareholding  in  Sumur  Ventures.  It  is  important  to  take  note  that  Sumurwang  is  the  land  owner which  owns  all  the  land  plots  in  i-City  while  I-Bhd  is  the  developer  and  project  owner  of  i-City.  Although  there  could  be  risks  in  relation  to unfavorable related party transactions, we deem the risk low as Tan Sri Datuk Lim also owns about 75% stake in I-Bhd. It would be in his best interest  to  optimize  profits  from  both  companies  in  order  to  gain  from  disposal  and  development  of  the  land.  In  addition,  independent directors of I-Bhd play an important role in protecting the interests of other shareholders. The shareholders of I-Bhd may actually benefit from
this arrangement if I-Bhd achieves at least a 20% PBT margin at its property development division going forward, which is well above the levels achieved  by  some  established  public  listed  property  developers.  Besides,  if  the  i-City  land  were  to  have  been  purchased  under  I-Bhd,  the company could have incurred a high opportunity cost by holding on to the piece of land for at least 10 years. This is because Tan Sri Datuk Lim bought the land in 1994, when demand for properties in Klang Valley back then was still very much concentrated in between Subang Jaya and Kuala Lumpur, and the land did not break ground until seven years ago.

Puan  Sri  Tey  Siew  Thuan.    Puan  Sri  Tey,  spouse  of  Tan  Sri  Datuk  Lim,  was  appointed  to  the  board  in  1999  and  is  currently  the  executive director of I-Bhd. She is responsible for the property development and financial aspects of the company.
 
Dato' Eu Hong Chew. Dato' Eu was also appointed to the board in 1999 and is currently the CEO of I-Bhd. He has a first class honors degree in mechanical  engineering  from  the  University  of  Glasgow,  United  Kingdom.  He  also  holds  an  MBA  from  the  University  of  Bradford,  United Kingdom.

 Source: OSK