News      Proposed acquisition cum development of 1,172ac land in Kota Kemuning or previously known as “Canal City” for RM1.3b or RM25.4psf from Menteri Besar Selangor and Permodalan Negeri Selangor Berhad. The land payment terms are on a progressive basis over 12 years, alongside 5% share of GDV and 3% of PAT to the land vendors (refer overleaf).

Comments     We are neutral to positive on the acquisition. The balance burden is alleviated by progressive land payments over 12 years, only after the initial payment of RM50m; thus, the impact to net gearing is minimal (maintained at 0.6x). However, the project will take 15 to 20 years to realise and the earliest earnings accretion would only kick in from FY15 onwards.

The lifestyle-concept township’s initial GDV is at least RM8.6b. Management envisions that with prospects of strong accessibility, the project’s GDV can swell to RM20.0b when fully completed over the 15-20 year time frame. So based on the a GDV of RM8.6b, we derive an extraction rate of GDV RM7.3m/ac, which is 24% higher than its neighbouring project – Bandar Rimbayu by IJM Land at GDV RM5.9m/ac. This may be achievable as management said they expect high content of high-rise developments in the township, implying potential increases in GDV. We may increase our GDV assumption upon the launch of their first phase.

Land cost is considered fair, given that it only makes up 15% of the RM8.6b GDV. Thus, the group should be able to reap c. 25% gross project margin.

Outlook     Dijaya’s FY13E sales target of RM2.0b will be mainly driven by Tropicana (“T.”) Gardens, T. Metropark, T. Danga Bay, T. Danga Cove, Penang World City, etc. Canal City’s sales will only be felt from FY15E onwards.

Forecast     We expect the new project earnings to commence largely from FY15 onwards. As a result, there are no changes to our FY13-14E earnings.

Rating      Maintain OUTPERFORM

Valuation    Our FD SoP RNAV has increased by 5% to RM3.58 due to inclusion of the new project.

Revising our TP higher from RM2.05 to RM2.15 based on unchanged 40%* discount on higher FD SoP RNAV of RM3.58 (see overleaf for details).

Risks      Unable to meet sales targets. Sector risks, including negative policies.

Source: Kenanga