Initiating coverage on Dijaya with OUTPERFORM and a fair value of RM2.05 based on 40% discount to our FD RNAV of RM3.41. The group has a total GDV of RM50b which is disproportionate to its market cap of RM1.2b as its pipeline is bigger than MAHSING, SUNWAY and IJMLAND. The company holds many prime landbanks in matured areas (e.g. Kota Damansara, Cheras, Subang Jaya, Penang World City) which naturally tap onto the up-graders and higher income markets implying resilient demand. We are also bullish on Iskandar and are heartened that Dijaya is the third largest listed big cap landbank owner in Iskandar behind UEMLAND and Sunway. Most Johor/Iskandar based developers share prices have shown stronger share price appreciation against the KLPRP. Dijaya is in the midst of de-gearing its balance sheet by sale of pocket landbanks this year and we believe the group can lower its net gearing to closer to 0.5x from current 0.77x. The company offers decent dividend yields of 4.2%-4.8% which is higher than typical developer’s 1%-4%. 

 

Huge pipeline. The group has a total GDV of RM50b which is relatively big vs. its market cap of RM1.2b. Much of their landbanks are located in prime matured areas, which makes it saleable or developable in the near tern. Their total GDV is bigger than MAHSING (RM18b) and IJMLAND (RM33b). The mismatch between their pipeline and GDV does indicate that Dijaya’s market value is far from its full potential, especially when it has an aggressive launch target. So, aspirations of growing their market capitalisation to RM3b in the next 5 years are entirely believable. 

 

Third largest exposure Iskandar for developers above RM1b market cap, behind UEMLAND and Sunway, as it makes up 50% of their total GDV. We are bullish on developers with sizeable exposures to Iskandar as we believe this will be the next big engine of growth for developers. They are one of the few developers to own Danga Bay landbanks which should enjoy strong demand and capital upsides given the recent acquisition of Danga Bay land by China’s Country Gardens Ltd and the JV between IWH and CapitaLand. 

 

De-gearing to strengthen balance sheet. Over the last two years, the group’s net gearing has increased to 0.77x from a net cash position, given their aggressive growth plan via asset injections from the amalgamation exercise. Now it is rationalizing its assets to reduce their net gearing to 0.5x in the next 12 months. We expect net gearing to reduce to 0.58x by end FY13E, upon realizing RM219m land sales. Currently, they have RM502m landbanks which are up for sale and if everything is sold in FY13E, net gearing could be as low as 0.29x. 

 

Higher growth momentum given its low base effect. We are estimating FY13E sales target of RM2.0b (+108% YoY) - similar to Dijaya’s target – driven by RM3.2b new launches. We are also assuming FY13E gross margins of 41%, which is within the range of previous years’ gross profits about 34%-44%. Hence, we estimate FY13E core earnings of RM166m (+181% YoY). Unbilled sales of RM951m provide about 1 year visibility. 

 

Attractive valuation points. Given their strong earnings leap, Dijaya’s FY13-14E PER will be lowered to 7.2x-6.2x while its Fwd PBV is as low as 0.6x which is cheaper than most developers >RM1b market capitalisation which are averaging at 12.3x-10.5x Fwd PERs and 1.3x Fwd PBV. Our TP implies an attractive capital upside of 35% or a total return of 39%. 

 

Source: Kenanga