BRDB (OSK Research) trading buy; target price RM1.83

Making its Way to Nusajaya


Bandar Raya Developments (BRDB) will replace Dubai’s Limitless Holdings as UEM Land’s majority partner in the development of the 111-acre ‘Residential North’ of the Puteri Harbour in Nusajaya, Johor. The company will buy Limitless’ 60% stake in Haute Property SB, a joint venture company which has been granted the development rights by UEM Land to develop properties on the said 111-acre land, for RM75m. BRDB is also obligated to advance to the JV company additional sums of up to RM70m to enable the latter to pay the balance payment due for the development rights to the land, to UEM Land. (Bursa)


Historical background on the JV. Recall that in December 2007, Limitless Holdings - a wholly-owned subsidiary of Dubai World, which is an investment company that manages and supervises a portfolio of businesses and projects for the Dubai government - entered into a JV agreement with UEM Land (Not Rated) to develop the 111-acre ‘Residential North’ of the Puteri Harbour in Nusajaya on a 60:40 basis via a JV company called Haute Property SB. However, in the wake of the global financial crisis in late 2008 and at the onset of the recession in 2009, the development project failed to take off. In addition, the Dubai debt crisis in late 2009 further diminished the possibility of Limitless Holdings receiving funding from its parent company to pay the remaining amount for the development rights and also to fund the Puteri Harbour project. Therefore, with as much as RM85m already being committed (RM75m as partial payment for the development rights and RM10m as partial commitment for operating and development expenses), we are not surprised that Limitless Holdings was very keen to sell off its stake in the JV to recoup some of its investments. In turn, UEM Land should be happy that it has found a more financially-sound partner in BRDB.

Briefly on the proposed project. Dubbed the ‘Residential North’ of Puteri Harbour, the development project will sit on 111 acres of freehold agricultural land in Nusajaya. The proposed development will comprise high-end mixed residential properties such as waterfront bungalows, detached houses, townhouses and condominiums. The proposed project is still at a preliminary stage and its master plan is likely to be revised soon. The development is expected to be carried out in 6 phases over 7 years, with the construction of Phase 1 expected to commence in 3QCY11. The initial guided GDV is about RM2.3bn and the expected Gross Development Profit is RM700m (or gross profit margin of ?30%).

RM145m bill may appear expensive. In addition to the RM75m that BRDB will be paying for the 60% stake in the JV company, it is also required to advance up to RM70m to the JV to enable the latter to pay for the balance due for development rights to the land to UEM Land,
bringing the total cost to about RM145m. Based on BRDB’s stake in the JV, this will translate into about RM50psf, or the land cost for the development project. This is double the average price of residential land of RM25psf, and significantly above the RM7psf average for agricultural land in South Johor. This premium, however, may take into account two prime factors: (i) the location of the land within Nusajaya enables the project to synergistically tap on the infrastructure, facilities and spillovers from the other ongoing developments in Nusajaya such as Medini Iskandar, the NuMed Campus, SiLC and Bio-Xcell, Legoland and the Afiat Healthparks; and (ii) the commitment by UEM Land, being the master developer of the entire Puteri Harbour, to provide primary infrastructure including roads, drains, water mains, sewerage plants and mains, electricity, telecommunications and/or other utilities mains, pipes, cables or lines leading up to the boundary of the land in phases, as and when required, for the JV company’s development. If the budgeted GDV of RM2.3bn is sensible, then the land cost would come up to about 10.5% of the expected GDV, which is fair.

Not included in forecast as yet. As the project is still at a preliminary stage and there are yet to be any details on the launches, we are not imputing its prospects into our earnings forecast and valuation for the time being.

Maintain Trading Buy.
As the project is not included into our valuation as yet, we maintain our CY10 target price of RM1.83, based on 0.52x CY10 P/NTA. As we have mentioned in our previous reports, management’s strategy for development launches appears to concur with
our view on the Malaysian property cycle. As the property market will only begin to warm up in 2H10 before the 2011 upcycle, BRDB will be launching Phase 1 of its Hartamas II mid-end condos (worth about ?RM300m) and CapSquare Condos 2 projects (?RM250m) in 2H10. In
saving the best for last, BRDB would only be launching its two prime luxury projects in Taman Duta and Bukit Bandaraya in early 2011. With these projects all lined up for launch in 2H10, BRDB is poised to ride high in the impending 2011 upcycle. We therefore maintain our Trading Buy call on the company.

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