Magna Prima Bhd (June 22, RM1.50)

Initiate neutral with a target price (TP) of RM1.59: Magna Prima Bhd has over 32 acres (12.9ha) of land bank in the Klang Valley, where 25 acres of the land is located in Shah Alam. Besides, Magna Prima has 6.96 acres along Jalan Gasing in Petaling Jaya. Collectively, the land bank has a remaining gross development value of more than RM2.2 billion, which provides the company with five to seven years of earnings visibility.

Magna Prima also owns 2.6 acres of prime land in Jalan Ampang, located in the Golden Triangle of Kuala Lumpur and is close to Petronas Twin Towers. Magna Prima has been reportedly putting up the Jalan Ampang land for sale. Based on the latest book value of RM382 million for the Jalan Ampang land, we estimate that Magna Prima may potentially realise a disposal gain of over RM200 million should the sale go through.

Hua Yang Bhd emerged as Magna Prima’s largest shareholder in April after raising its stake in Magna Prima to 30.06% from 10.84%. We are positive about the entry of Hua Yang due to potential synergies between the two companies considering the similar property exposures in the Klang Valley. Besides, we expect Magna Prima to leverage on Hua Yang’s expertise in developing affordable housing.

We forecast Magna Prima’s earnings for the financial year 2017 (FY17) to be lower at RM7.2 million, down 38.6% year-on-year due to completion of larger-scale projects such as The Istana and The Avare in the previous two financial years. Nevertheless, we expect Magna Prima’s earnings to recover from FY18 onwards as we anticipate its earnings to be driven by sales from its new property projects in Shah Alam. We initiate coverage with a “neutral” recommendation and a TP of RM1.59 based on a 20% discount to fully diluted realisable net asset value and due to its neutral earnings outlook. Potential catalysts include value unlocking of the Jalan Ampang land either in the form of a sale or a development plan for the land being ironed out. — MIDF Research, June 22

This article first appeared in The Edge Financial Daily, on June 23, 2017.

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