We upgrade KSL to Buy with a revised fair value of MYR2.45. KSL is another small cap Iskandar play under our coverage. It has >2,000 acres of landbank in Johor. Given the latest 13th General Election (GE) outcome, the high-beta property sector will be the focus. The active landbank transactions in Iskandar will also help KSL in its RNAV rerating. Earnings contribution from KSL’s property assets is also getting more material.

♦ Upgrade property sector to Overweight. Given the latest 13th GE results, we upgrade the property sector to Overweight. We advocate
investors to take position in the high-beta property sector, given its consistent property sales, earnings delivery, and undemanding
valuations. The sector is also currently on the upcycle trend.

♦ A small cap Iskandar play. KSL has >2,000 acres of landbank in Johor. Recent launches have also seen significant interest from people residing in Singapore. The newly released D’Inspire has already achieved a takeup rate of over 80%, with psf pricing of MYR580-590. It is a high-rise condo projects in Nusa Bestari township, and the key selling-point is the potential pass-through of the proposed High Speed Rail Link connecting KL and Singapore. Therefore, we believe the second block will be marked up by another 20% when it is launched over the next few months. We expect to see similar positive demand on KSL’s other ongoing projects in Iskandar, such as Taman Bestari Indah and Taman Kempas Indah. The RNAV re-rating will be gradually realised.

♦ Upgrade to Buy with a fair value of MYR2.45. KSL is undervalued at a PE of <5x. Sales and earnings are expected to come in strongly. Apart from the encouraging sales in Iskandar, the company’s new township project Bandar Bestari in Klang is also seeing strong demand. Income contribution from its property assets in Johor – shopping mall and hypermarkets, as well as hotel will also get more material this year. As we now value the property stocks at upcycle valuations, we revise our fair value of KSL to MYR2.45 (from MYR1.83), at 40% discount to RNAV. Correspondingly, rating on the stock is upgraded to Buy (from Neutral).

Source: RHB