LBS Bina Group Bhd (Nov 17, RM1.99)

Maintain buy with an unchanged target price of RM2.27: LBS Bina Group Bhd has received the approval of China’s Development and Reform Bureau of Gaoxin District for the additional usage of its 264-acre (106.84ha) Zhuhai International Circuit (ZIC).

Under the approval, the ZIC is divided into two plots — East Land and West Land. West Land with an area of 862,395.4 sq m has been approved with a plot ratio of 0.22, giving a total build-up area of 189,726.9 sq m. This parcel of land will encompass the China-Malaysia Cultural Centre, racing circuit amenities (including a race car servicing centre, exhibition hall, research and development centre, petrol kiosk, first aid centre and so on), a theme park, commercial area and tourist visiting tower.

Meanwhile, East Land, with an area of 153,212.7 sq m, has been approved with a plot ratio of 1.5, giving a total built-up area of 229,819.1 sq m. This parcel of land will be used for additional developments encompassing the Malaysia Cultural Village, China-Malaysia Cultural Museum, Cheng-Ho Cultural Hall, the Malaysian economic and trade building, themed business area, hotel block, shopping arcade and daily amenities.

We are positive on this new development in the ZIC as the group can now start talking to interested parties, given the approval for the land usage of the ZIC. LBS is currently exploring a few options to realise the land bank value of the 264-acre ZIC, which include outright sales or joint ventures with its China party to co-develop the land, or even listing the ZIC in Hong Kong/China. Should the group opt for development, LBS is required to obtain relevant approvals from the local authorities, such as the water resources department, environmental department, land and resources department and so on, latest by November 2019 for West Land and November 2020 for East Land, prior to commencement of work.

We opine that the group shall dispose of the land in view of the project’s long gestation period, sizeable land premium incurred and massive capital outlays, with an estimated total investment of 3.5 billion yuan or RM2.2 billion for projects on the two parcels of lands. Should the group decide to sell off the ZIC, we think that LBS would reward its shareholders with a special dividend as evidenced by its previous sale of the Lakewood golf course and development land in mid-2013, and subsequent declarations of special dividends for financial year 2013 (FY13) to FY17. Conservatively, we expect the group to chalk up land sales of HK$1.3 billion or RM694 million for the disposal of the ZIC (assuming a selling price of HK$118 per sq ft (psf), which is the same as the previous sale of the Lakewood golf course and development land in mid-2013).

We believe East Land could even fetch up to HK$2,190 psf, which has a higher plot ratio of 1.5, comparable with the current market value of Lakewood Hills of 20,000 yuan psf, with a plot ratio of 1.0 and a 50% discount to 41,800 yuan per square metre, paid by Yanlord Group, for a prime residential site in the Tang Jia Wan district located near Zhuhai’s seafront in June this year. — JF Apex Securities Bhd, Nov 17

This article first appeared in The Edge Financial Daily, on Nov 20, 2017.

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