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IJM Land (AmResearch) maintain buy; fair value RM3.88

IJM LAND
Second wind from NAV expansion


Investment Highlights

• We maintain our BUY rating on IJM Land and raise our fair value from RM3.60/share to RM3.88/share based on an unchanged 10% discount to our revised fully-diluted (FD) NAV of RM4.31/share.

• We lifted our FD NAV from RM4.00/share to RM4.31/share to account for an estimated accretion of RM0.31/share (50% stake) from the acquisition of 2,000 acres of land at Canal City (GDV: RM6.5bil). The acquisition price of about RM5.00/psf is very attractive. Payment will be staggered over four years. The maiden launch is expected to be in 4Q11.

• The significance of this deal is its attractive pricing, sheer size and immediate development potential given a large residential catchment in the locality. The deal will also give it a strong foothold in the lucrative township development in the Klang Valley: annual presales may be 2x higher than its flagship Seremban II township.

• The recent tender by the Penang state government for 93 acres at Bayan Mutiara for RM200psf may establish a new benchmark price for seafront land. This may lead to a repricing of implied land values at Phase II (103 acres) of The Light, which should cost less than RM50psf to reclaim.

• Newsflow momentum is re-accelerating. The imminent debut of Light Collections II (GDV: RM260m) in November 2010 is highly anticipated. IJM Land is actively negotiating with anchor investors to pre-commit on its highly sought after waterfront retail mall (GFA: 1.0msf) at Phase II.

• Management is capitalising on the maturity of Seremban II to build a large Mydin Hypermarket (GFA: 0.5msf) on 13 acres of land. There may also be room for growth by ‘acquisitions’ particularly in buying controlling stakes in listed companies with ‘decent’ land bank.

• Presales in the first six months of this fiscal year have reached RM900m. IJM Land looks likely to surpass its presales guidance of RM1.2bil given its presales pipeline of a further RM700m till end FY11F. Unbilled sales now stand at RM1.1bil.

• We share management’s view that the much talked about cap on loan-to-value for third properties would not derail demand. In any case, the market may have already discounted the potential policy curbs.

• We also do not believe that residential prices may soften because of the continued strength in land prices. The elevated residential prices reflect high replacement cost for land due to sustained urbanisation.

NAV EXPANSION FROM VALUE ACCRETIVE ACQUISITION


From our recent company visit, we understand that IJM Land is acquiring some 2,000 acres of converted development land at Canal City, adjacent to the mature Kota Kemuning township. The said land will be acquired for about RM5.00psf or RM436m, with the payment to be staggered over four years. IJM Land will acquire a 50% stake in the project, with KEURO holding the balance 50%. The entire township development is expected to generate a significant GDV of RM6.5bil over 10-15 years.

Canal City is accessible via the existing Kota Kemuning township as well as via the Saujana Putra Interchange along the ELITE Highway. IJM Land will spearhead the entire development of Canal City. It will be positioned as a medium-to-high end development, with maiden launches of the bread-and-butter terrace houses expected by 4Q11. The indicative pricing range is between RM300,000 and RM350,000/unit.

The significance of this deal is its attractive pricing, sheer size and immediate development potential given a large residential catchment in the locality. The acquisition is also a good testament to IJM Land’s impeccable execution and market penetration because it is extremely rare to gain access to large parcel of land in the Klang Valley in recent years. The last ‘big’ land deal was more than eight years ago when SP Setia acquired some 6,000 acres of development land at Setia Alam.

The deal will also give IJM Land a strong foothold in the lucrative township development in the Klang Valley. We estimate that the annual presales at Canal City may reach RM600m on a steady state scenario. This is already more than two times higher than than the annual presales at its existing flagship Seremban II township.

We lifted our FD NAV from RM4.00/share to RM4.31/share to account for an estimated accretion of RM0.31/share (50% stake) from the acquisition of 2,000 acres of land at Canal City. In our NAV model, we have assumed that the said land will be developed over 11 years and a WACC of 10%. We have also factored a blended net profit margin of a lucrative 22% over the township life cycle because of the low entry price and steady appreciation in end-selling prices over time.

Tender for Bayan Mutiara in Penang will further underpinned implied land values

The recent tender by the Penang state government for 93 acres at Bayan Mutiara for RM200psf may establish a new benchmark price for seafront land, we believe. This may lead to a repricing of implied land values at Phase II (103 acres) of The Light, which should cost less than RM50psf to reclaim. From our discussion with management, we understand that the carrying cost of land at The Light should not be more than RM60psf including the allocated cost from the construction of the Jelutong Highway.

POLICY RISK DISCOUNTED; RESIDENTIAL PRICE CORRECTION APPEARS REMOTE


We share management’s view that the much-talked about cap on loan-to-value for third properties would not derail demand. In any case, the market may have already discounted the potential policy curbs. We also do not believe that residential prices may soften because of the continued strength in land prices. The elevated residential prices reflect high replacement cost for land due to sustained urbanisation.

RESIDENTIAL PRESALES ON TRACK TO SURPASS EARLIER GUIDANCE OF RM1.2BIL

Management is capitalising on the maturity of Seremban II to build a large Mydin Hypermarket (GFA: 0.5msf) on 13 acres of land. There may also be room for growth by ‘acquisitions’ particularly in buying controlling stakes in listed companies with ‘decent’ land bank.

Presales in the first six months of this fiscal year have reached RM900m. IJM Land looks likely to surpass its presales guidance of RM1.2bil given its presales pipeline of a further RM700m till end FY11F. The imminent debut of Light Collections II, comprising some 257 units of condominiums (GDV: RM260m) in November 2010 is highly anticipated. The average selling price may be raised to about RM660psf, versus its earlier guidance of RM600-RM620psf. Unbilled sales now stand at RM1.1bil.

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