Buzz over Genting Plantations' Johor Premium Outlet

Genting Plantations Bhd (Nov 15, RM8.12)
Maintain sell with target price RM6.07: The market is abuzz over the new Johor Premium Outlet (JPO), set to have its grand opening on Dec 11, according to the website. While Genting Plantations remains tight-lipped over JPO's tenants, we gather from the Internet a list of more than 60 brand names is likely to feature.

Although incremental earnings contribution from the JPO is expected to be muted, we are positive over its long-term effect on the remaining 6,670 acres of Genting Plantations' land.

Maintain "sell" as the stock trades at relatively rich valuation of 19.4 times 2013 price earnings ratio (PER). Our target price is unchanged at RM6.07, based on 14.5 times 2013 PER.

JPO is modelled after Woodbury Common Premium Outlets, an hour's drive from New York City. JPO is about one hour's drive from Singapore and three from Kuala Lumpur.

Popular international brands like Coach, DKNY, Burberry, Polo Ralph Lauren, Salvatore Ferragamo, GAP, Timberland, Nike, Emporio Armani, Guess, Levi's and Tumi (to name a few) are expected to have a presence in JPO.

Homegrown brandnames like Bonia, Padini, Seed, Vincci and Royal Selangor, and Singapore's Charles & Keith are also expected to be featured. Shoppers will typically enjoy savings of 25% to 65% on branded items all year round.

JPO, with an estimated total development cost of RM149 million, is a 50:50 joint venture between Genting Plantations and Premium Outlets, the outlet division of US-based Simon Property Group. The JPO is synergistic to Genting Plantations as it will enhance the value of properties in the region of Genting Indahpura, its flagship development, over the long run.

Property sales at Genting Indahpura have been slow, at less than RM50 million in 2010. Genting Plantations has approximately 6,670 acres of remaining land with estimated book cost of RM1.22 psf (as at December 2010).

We understand this project is very profitable with a projected internal rate of return (IRR) in the high teens. Assuming a 15% IRR, the project may add some RM11 million per year to net profit beginning 2012, less than 5% of Genting Plantations' net profit. In addition, we expect the company to recognise some RM8 million in land gain disposal for the JPO in 2H11, which we have yet to recognise in our earnings forecast. — Maybank IB Research, Nov 15