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Encorp to capitalise on completion of Nusajaya’s commercial elements in 2012

KUALA LUMPUR: Encorp Bhd, which announced on April 22 a proposal to acquire 3.3 acres (1.3ha) in Puteri Harbour, Nusajaya for RM25.9 million from UEM Land Bhd, said it has been given assurances by the vendor that the main commercial elements of the township would be ready by 2012.

The mid-cap property developer said it planned to capitalise on the expected boost in activity in 2012, to support sales of its mixed commercial and serviced apartment project in Nusajaya, which has a projected gross development value (GDV) of RM330 million.

Construction of the project would take four to five years beginning 2011, Encorp Must Sdn Bhd project director Ricky Hong told The Edge Financial Daily.

Government incentives to attract developers to the Iskandar Development Region, of which Nusajaya is part of, has also played a role in Encorp’s decision to embark on the project, said Hong.  

“The timing is right; we are only 10 minutes from the CIQ and there will be water taxis linking Puteri Harbour and Singapore,” said Hong, adding that the service would cut down travel time to and from Singapore to 20 minutes, one way.

Tourists visiting Singapore would be able to hop onto taxis to visit Puteri Harbour, especially since the new Custom, Immigration, Quarantine (CIQ) and Port Clearance terminal would be located there. Furthermore, visitor traffic to the island city is expected to rise with the opening of the two integrated resorts, Resorts World at Sentosa and Marina Bay Sands.

At the same time Hong said he expects Encorp’s serviced apartments to attract those working or holidaying in Singapore given the 30-minute travel time to Singapore’s Central Business District.

Apart from this latest land acquisition, Encorp had also in March, proposed an issuance of five-year 6% redeemable convertible secured loan stocks (RCSLC), which would raise some RM134 million. This gave rise to speculation that major developments are in the pipeline with analysts saying they could be located in the Klang Valley where Perbadanan Kemajuan Negeri Selangor (PKNS) has a large landbank.

The Strand development in Kota Damansara, Petaling Jaya, is a joint-venture project with PKNS, with an equity structure of 70% Encorp and 30% PKNS.

Hong admitted that Encorp does have “strong links” with PKNS due to its profitability and that it is in talks with the state body on other projects but nothing has been firmed up as yet.

Encorp plans to utilise the RM134 million financing it has proposed to drive its aggressive expansion locally as well as abroad, particularly in Perth and Melbourne, Australia.

The Australian development would be residential projects rather than the mixed developments that Encorp is doing in Malaysia, said Hong.

The company’s aggressive expansion is masterminded by founder Datuk Seri Mohd Effendi Norwawi who returned to the company as executive chairman last September. Effendi Norwawi is currently a senator in the Prime Minister’s Department (since 2006) and was Minister in charge of the Economic Planning Unit in the Prime Minister’s Department from 2006 to 2008.

Encorp is both known for successfully building 10,000 units of teachers’ living quarters for the government in 109 sites over nine states under a 30-year concession, as well as for its popular The Strand development in Kota Damansara.

Currently, the offices within The Strand have been completed and occupied while the shopping mall and an enclosed boulevard shopping and dining zone are set to be opened by end-2010.

Earlier, the company had raised some RM1.3 billion in bonds to finance the teachers’ quarters project. Encorp receives a monthly income of RM11.3 million from the project, over the 30-year period, which ends in 2028.

The teachers’ housing quarters were handed over to the Ministry of Education in 2004. When asked, Hong clarified that the project was not linked to PKNS.  

HwangDBS Vickers Research in an April 27 report said that Encorp’s partnership with PKNS gave the company the benefit of being asset light and allowing it to pay for land cost in stages. It also has access to a ready pipeline of prime landbank that PKNS owns.

There have been talks with UEM on other projects since the company’s entry into the Nusajaya development, he added.

HwangDBS Vickers which said that Encorp was the cheapest property and construction stock in its research universe (at RM1.16 on April 27, trading at 10 times financial year ending Dec 31, 2011 price to earnings ratio) has set a target price of RM1.70 per share for Encorp based on a 20% discount to its sum-of-parts valuation of the company at RM2.10 per share.

The counter closed at RM1.17 on May 3.

This article appeared in The Edge Financial Daily, May 4, 2010.
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