We are initiating coverage on Selangor Properties Bhd (SPB) with a Buy recommendation. SPB operates 3 major business segments, namely: 1) property investment, 2) property development, and 3) investment holdings. We like the group’s prized assets in Damansara Heights and believe it is entering a new chapter with the launch of Aira Residence. SPB is more than just an undervalued property company and we believe it will draw greater investor recognition over time. Based on a target FY18 P/B multiple of 0.8x, we value SPB at RM5.98.

Investment Case

• Owns prized assets in Damansara Heights

• Entering a new chapter with the launch of Aira Residence

• Undervalued with strong balance sheet

Key Risks

• Perception of a boring and unexciting company

• Foreign currency risk

Forecasts

Our FY17/18/19 earnings projections are premised on the following assumptions

• FY17/18/19 property sales of RM340mn/RM370mn/RM430mn respectively, with a blended EBIT margin assumptions of 20%.

• Overall portfolio occupancy rate of 95% with an average rental growth of 3% p.a.

Valuation

In our opinion, SPB is more than just an undervalued property company. While the company has been quieter than other property peers such as SP Setia, Eco World, Mah Sing and Sunway, we think SPB has and will be able to continue generating decent returns for shareholders. We also believe it is entering a new phase in its business operations, which would draw greater investor recognition over time. Based on a targeted FY18 P/B multiple of 0.8x, we value SPB at RM5.98. We are initiating coverage on the company with a Buy recommendation

Source: TA Research - 25 May 2017