Kuala Lumpur Kepong Bhd (Sept 20, RM25)
Maintain buy with an unchanged target price of RM27.38: We visited Kuala Lumpur Kepong Bhd’s (KLK) property development project in Bandar Seri Coalfields (BSC) and returned feeling positive on the company’s property division’s long-term prospects. BSC is a 1,001-acre (405ha) freehold township development in Sungai Buloh, Selangor. It is located approximately 45km from the Kuala Lumpur city centre. Launched in 2011, the township has a total gross development value (GDV) of RM4 billion with an expected completion period of 15 years.
KLK has launched the maiden phase of North Haven Coalfields, Hemingway Residences which comprises 158 units of superlink homes (lot size 24ft x 90ft) and 94 units of semi-detached homes (lot size 40ft x 100ft). We gather that the price of superlink homes start from RM770,000 while the semi-detached homes from RM1.15 million.
In its financial year 2017 (FY17), property division registered profit before tax (PBT) of RM40.5 million, representing a small contribution of 3% to the group’s total PBT. Despite the small contribution currently, we expect it to grow in the future due to other strategic land bank in Sungai Buloh.
Besides BSC, KLK owns 2,187 acres (885ha) of land bank in Sungai Buloh and 415 acres (167.9ha) in Ijok. Our estimate shows that the total GDV for these two new townships could exceed RM10 billion. KLK plans to launch the first phase in both land bank in the fourth quarter of next year.
Our earnings estimates are unchanged as the information gathered has been included previously. Our TP is based on a forward price-earnings ratio of of 26.8x (+1 standard deviation valuation). Maintain “buy” on KLK for its earnings resiliency and decent dividend yield. — MIDF Research, Sept 20
This article first appeared in The Edge Financial Daily, on Sept 20, 2018.