IJM Land Holdings Bhd (Apr 14, RM2.79)
Maintain outperform at RM2.80 with revised fair value of RM3.28 (from RM3.18): Following the unsuccessful merger between IJM Land and Malaysian Resources Corp Bhd (MRCB), IJM Land's share price has fallen from the peak of RM3.24 at end-December. Despite the continued gradual run-up in share prices in the property sector (the KL Property Index has risen 8% year-to-date) since January 2011, the performance of IJM Land's shares has been flattish (YTD -2%) against Mah Sing Group Bhd's +41% and S P Setia Bhd's +11%. Hence, the stock is largely a laggard among the key property stocks.
We believe the current valuations on IJM Land are very decent, given the company's unchanged, solid fundamentals, strategic landbank exposure and more importantly the expected over 50% net earnings growth in FY12, which is one of the highest among the property stocks under our coverage. Our forecast on IJM Land's FY12 earnings is only 3.3% higher than the consensus estimate. In comparison with UEM Land Holdings Bhd and S P Setia's price-to-book value of 3.3 times and three times, IJM Land is currently trading at only two times PB, similar to Mah Sing's 2.2 times.
The value of the 2,000-acre (809.4ha) Canal City land will be unlocked next year. We believe management's guided gross development value (GDV) is rather conservative at RM6 billion, which should give an upside on realisable net asset value (RNAV). We estimate the potential GDV from this land could be as high as RM10 billion, taking into account a reasonable efficiency ratio and average house price of RM500,000 per unit. We have therefore imputed a GDV estimate of RM8 billion for this project into our RNAV estimate. The project will be a township development, which should enhance IJM Land's long-term recurring earnings from sustainable bread-and-butter projects. As such, we would not be overly concerned over any delays or unexpected turns in the property cycle. Given IJM Land's established track record, we believe the project will be another successful big township project in the Klang Valley (apart from S P Setia's Setia Alam). First launch of the project is targeted in 2H12. This is slightly later than expected due to revisions in the development plan and concept and timing for submissions and approvals.
The risks include: (i) competition from peers; (ii) regulatory risk; (iii) rising building material costs; and (iv) country risk.
In our recent discussion with management, it was indicated that the parent company IJM Corp will be converting its RCULS soon. The net impact on our FY12/13 earnings per share forecasts is -15% to -17.5%, after accounting for the interest savings and larger share base.
We reiterate our "outperform" call with a higher fair value of RM3.28 (from RM3.18), at its RNAV per share, accounting for the higher GDV estimate for the Canal City land as well as a larger share base. IJM Land is our top pick besides Mah Sing. — RHB Research, Apr 14
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