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IJM Land (Kenanga Research) buy; target price RM3.20

IJM Land
Canal City in the limelight


Canal City becomes a reality. We understand IJM Land (IJML) has inked Canal City (50:50 JV with Kumpulan Europlus) land deal and is in the midst of finalizing fine print details. Land size is likely 2,000ac. IJML expects to launch the project 1.5-2 years time. We estimate GDV RM6.3b for Canal City based on using Kota Kemuning as a reference point (refer below), above management’s conservative guidance of RM4.0b.

Canal City poised for growth. The land is at the edge of Kota Kemuning and neighbours Putra Heights, Bandar Saujana Putra and Puchong. These are growth zones given affordable home prices in the area. The site will enjoy good connectivity; the site is surrounded by KESAS and North South Central link while the extension of the SKVE highway will come online next year. Canal City could potentially enjoy further connectivity if the proposed West Coast Expressway comes through.

The Light Collection II (GDV RM260m) slated for launch end Nov 2010 with indicative ASP of RM680psf. Since these are water front developments, we expect quicker take-ups vs. The Light Collection I (take ups: c.55%).

>10% YoY growth in annual sales achievable, excluding any en bloc sales, according to management. Hence, we revise up our FY11-12E sales (excl. en bloc sales) estimates by 17% -21% to RM1.43b (+15% YoY) – RM1.65b (+15% YoY) or total sales by 13%-21% to RM1.82b (+46% YoY) – RM1.65b (-9% YoY). Current booking sales are c.RM200m. 2Q11 sales are expected at c.RM340m or flat QoQ growth from 1Q11, implying 1H11 sales of RM680m makes-up 53% of our FY11E sales estimates (excluding en bloc sales) of RM1.28b.

Upward revision to FY11-12E net profit by 2%-2% to RM191m (+76% YoY) – RM213m (+12% YoY) as we upgrade our sales estimates. Unbilled sales is currently RM900m, providing close to 1 years visibility.

Higher fair value of RM3.20 (previous RM2.80), based on diluted SoP RNAV, mainly due to inclusion of Canal City (see below for further explanation). Following our last property sector report (14/10/10), we had mentioned IJML fair value will be upgraded if 1) there are no severe negative policies during Budget 2011 (e.g. higher RPGT) 2) IJML can achieve 15%-20% YoY growth in sales (excl. en bloc). We also believe maintaining our BUY call is warranted because of Canal City’s valuations and growth potentials as large tracks of developable landbank in Klang Valley is tough to come by, while liquidity is improving. The stock will attract interest given its sizeable market capitalization of RM3.1b and it as an alternative proxy to the Malaysian property market.

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Canal City

Canal City becomes a reality. We understand IJM Land (IJML) has inked Canal City (50:50 JV with Kumpulan Europlus) land deal and is in the midst of finalizing fine print details. Land size is likely 2,000ac and will be alienated with ‘building’ status. IJML expects to launch the project 1.5-2 years from now while infrastructure works are likely to kick-off in 1 year time. Project duration is 12-15 years.

Poised for growth. The land is at the edge of Kota Kemuning and neighbors Putra Heights, Bandar Saujana Putra and Puchong. These are growth zones given affordable home prices in the area. The site will enjoy good connectivity; the site is surrounded by KESAS and North South Central link while the extension of the SKVE highway will come online next year. Canal City could potentially enjoy further connectivity if the proposed West Coast Expressway comes through.

We estimate GDV RM6.3b for Canal City, which we think is a conservative estimate. Management is still guiding RM4.0b, but we believe GDV upside is more. In our blue-sky estimates, GDV could be as high as RM12b.

We derived our estimated GDV of RM6.3b based on; 1) 9 units of terrace (22x75 land area) homes per acre vs. typical 10-15 units per ac 2) sale price of RM350,000 per terrace unit, which is a discount to common Kota Kemuning terrace house prices of RM400,000-RM500,000 per unit. This implies GDV/acre of RM3.2m, which is similar to the early life of Setia Alam developments; currently, Setia Alam is in a growth phase of the township cycle and reaps >RM5m/acre GDV, whilst high-end residential projects like Setia Eco Park reaps >RM9m/acre GDV.

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Expecting gross development margins to be >25%. Management mentioned it is too preliminary to guide us on land and infrastructure cost. Based on works done for Canal City and ball-park infrastructure cost per acre, we believe developable land cost will only make up 10% -20% of our assumed RM6.3b GDV, meaning >25% development margins.

The Light

The Light Collection II (GDV RM260m) slated for launch end Nov 2010. This phase is a combination of studio to large condo units and will likely have an ASP of RM680psf, which is higher than The Light Point (RM630psf). Since these are water front developments, we expect quicker take-ups vs. The Light Collection I.

Currently, The Light Collection I (ASP: RM580psf) has take-ups of c.55%. The slower take-ups are largely due to the units not having sea frontages. But we do expect take-ups to accelerate when The Light Collection II, III and IV are launched. Both the Light Point and Light Linear only have Bumiputra units left, which can be released in 1.5-2 years time or when 80% completion rates are achieved.

We can also look forward to commercial content of The Light Phase II (commercial portion; 103ac) as reclamation contract is likely awarded early in CY11.

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Other project updates

Sebana Cove. The project enjoys spill-overs from the oil & gas industry in the Kota Tinggi vicinity, attracting plenty of expats on short stays in the resort (e.g. Sebana Cove Golf & Marina Club is under IJM Corporation). At the moment, IJML has submitted revised project layout, which will take about 9-12 months to complete. Hence, earliest launch is 1 years from -2 now.

Contributions from overseas projects to remain <5% of earnings over the next 2-3 years. The mixed development project in Changchun, China will only be launched in 1.5-2 years time, whiles its Dong Nai, Vietnam project will see a small launch c.100 units of apartments of USD8m-USD9m (RM25m-RM28m) GDV by end 2010.

Earnings and Valuations

2Q11 to record c.RM340m sales or flat QoQ growth from 1Q11; Hence, 1H11 sales of RM680m makes-up 53% of our FY11E sales estimates (excluding en bloc sales) of RM1.28b (42% of our RM1.61b FY11E sales inclusive of the AEON mall en bloc sales). Key sales boosters are The Light Collection I, The Pearl Regency and ongoing townships in Seremban 2, Bandar [email protected]

>10% YoY growth in annual sales achievable, excluding any en bloc sales, according to management. Hence, we revise up our FY11-12E sales (excl. en bloc sales) estimates by 17%-21% to RM1.43b (+15% YoY) – RM1.65b (+15% YoY) or total sales by 13%-21% to RM 1.82b
(+46% YoY) – RM1.65b (-9% YoY). Current booking sales are c.RM200m.

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Upward revision to FY11-12E net profit by 2%-2% to RM191m (+76% YoY) – RM213m (+12% YoY)
as we upgrade our sales estimates. Bulk of our sales estimate revisions will impact FY13E due to timing of completion, which results in a 29% revision to FY13E net profit to RM278m (+30% YoY). Unbilled sales is currently RM900m, providing close to 1 years visibility.

Higher fair value of RM3.20 (previous RM2.80), based on diluted SoP RNAV, because we 1) impute for Canal City which makes up 11% of our new RNAV or adds 16sen to our previous RNAV 2) lowered WACC rates to 11.5% from 12.0% 3) improve development margins as we do see margin expansions.

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Maintain BUY. Following our last property sector report (14/10/10), we had mentioned IJML fair value will be upgraded if 1) there are no severe negative policies during Budget 2011 (e.g. higher RPGT) 2) IJML can achieve 15% -20% YoY growth in sales (excl. en bloc). We also believe
maintaining our BUY recommendation is warranted because of Canal

City’s valuations and growth potentials as large tracks of developable landbank in Klang Valley is tough to come by, while liquidity is improving. The stock will attract interest given its sizeable market capitalization of RM3.1b and it as an alternative proxy to the Malaysian property market.


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