Kwasa Land S/B (Kwasa), EPF’s wholly-owned subsidiary, has released a press statement regarding the development of its 2,330 acres track of land in Sungai Buloh. Kwasa is the master developer of the land which will be named Kwasa Damansara and has an estimated GDV of RM50b over the next 20 years.

Details of the development. The master plan for the proposed township of Kwasa Damansara has been presented to the State Government for their evaluation and approval. Expected to attract a population of more than 150,000 people, the township will adopt a Green, Connectivity and Inclusiveness concept. Note that the land has two MRT stations. Based on the press release, we understand that once approvals are obtained, the first parcel of 64 acres will be developed into a modern town center and transport hub in partnership with Tier-1 developers. This town center will have a 70:30 commercial-residential mix. In addition to the town center, 10-20 acres will also be tendered out to Tier-2 and Tier-3 Bumiputera developers for residential development. Another 30 acres will be for EPF to consider building a corporate park. The first three developments will take place within the first two years under Majlis Bandaraya Shah Alam (MBSA). In total, the entire Kwasa Damansara land will comprise of 42% residential, 11% commercial, 7% mixed use, 11% green and open space, 23% infrastructure and 6% for community facilities.

Only qualifying 60 developers. According to the press release, over 150 developers had submitted their credentials and applied for the opportunity and the Kwasa Land Pre-Qualification committee will also limit the number qualifying candidates to only 60 of the best. We understand that tenders for the development of Phase 1 will be called in Feb-2014. There will be three tiers of developers; (i) Tier-1 developers are those with a paid-up share capital or shareholders funds of at least RM1b, (ii) Tier-2 are medium-scale developers with a paid-up share capital or shareholders funds of at least

RM300m, (iii) Tier-3 developers are Bumiputera companies with a paid-up share capital or shareholders funds of RM1m and above. Do note that the selection criteria take into account qualitative measures (recognition and awards, track record) and quantitative factors like paid up share capital or shareholder’s fund, pre-tax profit for the last three consecutive years, GDV and net gearing ratio. Development will likely be on a JV basis with Kwasa.

Comments on Property Developers:

We view this news positively as it is a source of revenue generation for developers, particularly when landbanking has become increasingly difficult as land prices are unlikely to ease. Additionally, the development has the support of EPF via Kwasa, which lends support for the success of the township. It is unclear if the land will be sold on "developable" or raw / gross land basis. However, we are inclined to think it is the former to maximize returns to Kwasa, and thus, EPF. At this juncture, we have no clue on the list of the 60 qualifying developers. However, out of our industry coverage, we believe the following developers qualify on both the quantitative and qualitative factors. Developers that meet Tier-1 criteria are UEMS (OP; TP: RM2.76), IOIPG (OP; TP: RM3.68), SPSETIA (MP; TP: RM3.25), SUNWAY (OP; TP: RM3.08), IJMLAND (OP; TP: RM3.15), MAHSING (OP; TP: RM2.56) and UOA (OP; TP: RM2.10). However, we believe that UEMS, SPSETIA, IJMLAND, SUNWAY and MAHSING are front-runners as they have expressed great interest in the project in the past. For Tier-2, developers that qualify are MATRIX (OP; TP: RM4.80), HUAYANG (OP; TP: RM2.33) and CRESCENDO (OP; TP: RM4.00). However, we believe CRESCENDO may not be interested since all of its exposure is in Johor and it has no active interest in the Klang Valley. We continue to maintain OVERWEIGHT on Property Developers, particularly towards 2Q14-3Q14.

Comments on Construction:

We are positive on the news as this means potential replenishment orderbook for the earthworks contractors such as WCT (MP; TP: RM2.50). Based on our channel checks, the earthworks for the Phase 1 could be worth around RM1.0b and WCT has been shortlisted. Other beneficiaries could be Gadang (NR), Sunway (NR), and Bina Puri (NR). Meanwhile, we also understand that MRCB could emerge as a prime developer of the whole project judging from its successful cluster “Transitoriented development” KL Sentral project. MRCB is a MARKET PERFORM with TP of RM1.40. All in, this news reinforces our OVERWEIGHT stance on Construction sector. This news could rerate MRCB and WCT shares given the fact that these stocks have been lagging recently on negative sentiment and their exposure in property sector.

Source: Kenanga