News  IJMLAND has acquired 60% of Asas Panorama S/B (Asas) for RM0.3m while the remaining 40% is held by Sino Development Ventures Ltd (SDVL). Asas has entered into a condition SPA to acquire 675.1ac 99-yr leasehold land in Kuantan, Pahang for RM296.1m (RM10.1psf). The land is along the Gebeng Bypass and is 5km away from Kuantan Port and is part of the synergistic expansion arrangement under the wider appendage of its parent, IJMCORP. Its parent has entered into a strategic partnership with Guangxi Beibu Gulf International Port Group Co Ltd (refer overleaf for more details and location map).

Comments  The project has an estimated GDV of RM1.4b and it will be a 10-yr project. The land breakdown is 42% industrial, 49% commercial while the remaining is residential. We believe the GDV guidance is conservative as it works out to be RM2.1m/ac as this is at the low-end of the spectrum for industrial developments (RM2m-RM3m/ac) not to mention that there are significant amount of commercial content.

 There are few available land price comparables but we think land price is fair being 21% of GDV as we believe the project pretax margins is likely 16%-18%. However, as mentioned earlier, we believe there are more upsides to GDV and thus, margins.

 Land funding structure has not been finalized, although we are assuming 50:50 debt-equity ratio on IJMLAND’s portion of RM177.7m given its strong net cash position. IJMLAND’s cost of 60% of Asas will be from internal funds. Hence, we expect its FY15 net cash position to reduce to 0.04x from 0.08x post the land acquisition.

Outlook  We are surprised by the news as industrial driven FDIs is a growing trend throughout Malaysia. Demand should be strong for industrial driven plays, the land being near an O&G/petrochemical related port and interest driven by China-related companies. We are longer-term positive since earnings will only kick-in in FY16 onwards.

Forecast  No changes to FY14E core earnings while FY15 is marginally lower by 1% due to the land financing assumptions. Commencement is likely in 3Q15 (4QCY14), meaning significant project earnings contributions by FY16 onwards.

Rating Maintain OUTPERFORM

Valuation  The project increases our FD RNAV by 2 sen to RM3.62 due to its long duration while the project only makes up 3% of its total remaining GDV. As a result, we maintain our TP of RM3.15 which implies 13% discount to our FD RNAV of RM3.62. We continue to like IJMLAND for its strong net cash position and are confident that the stock will continue to see strong demand due to its arsenal of affordable housing and landed residential projects.

Risks  Unable to meet sales targets. Delays in launches. Sector risks, including severe negative policies affecting property buyers/investors.

Source: Kenanga