BIMB assigns 59% premium to Avaland in maiden coverage

KUALA LUMPUR (Aug 26): BIMB Securities reported in its initiation coverage that Avaland Bhd (KL:AVALAND) could see upsides of 59% to its stock, as the premium-focused Klang Valley property developer’s strong project pipeline provides multi-year earnings visibility.

In an initiation note on Wednesday, the research house noted that Avaland’s consistent project replenishment has helped maintain the group’s unbilled sales book at about RM908.8 million, despite the recent completion of several sizeable projects.

The sales would allow for at least several years of earnings visibility, BIMB noted.

“In our view, this order book is the anchor of the earnings recovery. It converts to revenue as construction advances, giving Avaland a level of forward visibility that its depressed valuation does not adequately reflect,” the house said.

BIMB assigned a “buy” call on the stock, alongside a revalued net asset value-based target price of 27 sen per share.

"For smaller-cap developers, we generally apply a wider discount of 60-70% to reflect their relatively lower liquidity, narrower earnings base and higher execution risks," it said.

BIMB expects the group to see earnings grow 14.7% in the financial year ending Dec 31, 2026 (FY2026), 5.7% in FY2027 and 13.3% in FY2028, supported by continued project launches, progressive recognition of unbilled sales and contributions from higher-value developments in prime Klang Valley locations.

“We also expect the group’s premium-focused strategy to support higher ASPs (average selling prices) and margins, although near-term earnings may remain bumpy due to the timing of project launches and construction progress,” BIMB said.

As a small-cap company, Avaland currently has a market capitalisation of RM247.7 million, with the stock standing at 17 sen per share. However, BIMB noted that its major shareholder Ayala Land gives it a key advantage over other small- and mid-cap Malaysian companies.

As one of the largest property developers in the Philippines, Ayala Land’s relationship with Avaland would provide an additional layer of financial and strategic support, lowering Avaland’s overall project execution risk.

“While we would not assume unlimited parental funding in our valuation, the relationship should improve Avaland's access to development expertise, financing relationships and potentially capital when required,” the research house noted.

Despite the numerous tailwinds, BIMB noted that Avaland’s increasing exposure to premium and luxury developments is double-edged, as they carry higher ASPs but address a narrower buyer segment, resulting in longer sales cycles. The highly competitive Klang Valley property market could also limit the group’s pricing power while increasing promotional spending.

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