We raise our fair value on KSL to MYR2.65, after we adjust some of our land value assumptions in RNAV estimate. 1Q13 earnings came in above expectations, driven by both the property development and investment divisions. Better product mix and stronger income from the hotel operations have contributed to the growth. We continue to see value in this small cap Iskandar play. Maintain Buy. 

- Above expectations. KSL’s 1Q13 net profit of MYR47.9m beat expectations. Net earnings grew 31% q-o-q on the back of a 9.4% and a massive 75% growth in the revenue for property development and property investment divisions. While the growth in the property development division was attributed to better product mix and higher progress billings, the stronger performance from the property investment division was mainly driven by the hotel operations. 

- 30% increase in ASP for D’Inspire Residence Block 2. KSL has recently released Block 2 for D’Inspire Residence at Nusa Bestari. After seeing the successful sales of Block 1, average selling price for Block 2 is raised by 30% to about MYR800 psf, with unit price ranging MYR700-900k. We believe the project could attract many investors, as the key selling-point is the potential pass through of the proposed High Speed Rail Link connecting KL and Singapore. In the pipeline, there will be another high-rise project at KSL’s Taman Kempas Indah, which is also another hot area. There are no details on the indicative pricing yet. 

-  Forecasts. In view of the stronger earnings and margins, we raise our FY13-14 earnings estimates by 8-11%. 

- Fair value is upgraded to MYR2.65.KSL is one of the small-cap Iskandar play. Given the fast increase in land and property values in Iskandar, we revise our land value assumptions in our RNAV estimate. Based on an unchanged 40% discount to RNAV, our fair value is raised to MYR2.65 (from MYR2.45). We still see values in smaller cap property developer stocks. We maintain our Buy rating on KSL.

Source: RHB