IJM Land Bhd
(March 26, RM2.30)
Initiation of coverage with buy/medium-risk, target price of RM2.95: IJM Land currently trades at a steep 39% discount to our fully diluted revised net asset value (RNAV) of RM3.69 per share. We expect the upside to RNAV will come from rising value of The Light, its flagship waterfront development, and potential Canal City land acquisition. Our RM2.95 target price is based on a 20% discount to RNAV, in line with peer S P Setia Bhd.
We recommend investors to switch to IJM Land and sell S P Setia. S P Setia has a calendar year 2010 (CY2010) price-to-earnings ratio (PER) of 24 times and is trading almost inline with its RNAV.
IJM Land has stronger earnings growth (verssus S P Setia’s three-year compound annual growth rate or CAGR of 10%), more compelling valuations, and larger landbank of 5,740 acres (versus S P Setia’s 3,588 acres), making IJM Land a more compelling option for those seeking exposure to Malaysian developers.
We expect a three-year net profit CAGR of 59% in FY2010 to FY2012. The uplift in earnings from financial year ending March 31, 2011 (FY2011) onwards should be driven by The Light project in Penang and projects in the Klang Valley. Sales from Penang make up close to 35% of our forecast property development earnings before interest and tax (Ebit). We also forecast expansion in property development margins from 15% in FY2010 to 19% in FY11 due to higher margin products being launched.
There is an expected earnings upside from sale of land and property. IJM Land is currently in talks for the sale of its AEON mall in Melaka, and we have projected an RM50 million gain, although there could be upside risk to our estimate. The key focus development in Johor is Sebana Cove, hence there is a likelihood that land in other parts of Johor, such as Mount Austin (250 acres), could be sold at a profit.
Malaysia lacks large and liquid property developers to attract foreign investors. S P Setia has always been a firm favorite due to its size, strong management and liquidity. In our view, IJM Land could be a close rival to S P Setia with sales likely to hit close to RM1 billion in FY2010 and forecast to increase to RM1.37 billion in FY11. S P Setia recorded RM1.65 billion sales in FY2009. — Citi Investment Research, March 25
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