IJM Land: Property giant with large footprint

Price: RM2.28

Target Price: RM2.79

* Initiating coverage on IJM Land (IJML) with BUY. We like IJML given: 1) promising growth prospects (two-year CAGR of 75%; three-year CAGR 32%); 2) an alternative proxy to Malaysia’s property sector; 3) geographically diversified strategic landbank with large GDV pipeline; 4) positive news flow from headline projects (e.g. The Light, Changchun @ China); 5) low foreign shareholding to benefit from future foreign investors’ re-entry.

* Fair value of RM2.79, based on diluted (ex-warrants only) SoP RNAV and excludes Canal City. Our RNAV conservatively assumes overall 14% net margins, 12% WACC rates and longer project durations of more than five years. IJML is current trading at FY11E PER of 16x and 1.5x PBV. Our fair value provides 22% upside to current share price.

* IJML owns one of the largest landbank (>7,600ac) with estimated RM25 billion GDV in Malaysia. Sizeable lands are in key property growth regions like, Klang Valley, Penang island, Johor Bahru (JB), Seremban, Sarawak and Sabah. IJML is one of the few developers with expertise in almost all property segments; ideal for capitalising on all property cycles. A promising future lies ahead for IJML given two large pipeline projects; The Light and Sebana Cove.

* The Light – Phase I (residential component) of RM1.2 billion GDV is enjoying brisk sales. The Light Linear (Linear) and The Light Point has achieved 85% and 70% take-up rate. The residential portion should yield c.35% gross margins. We do expect future margin and GDV enhancement given ability to price-up. The Light’s residential component makes-up 5% of our Revised Asset Value.

* China development worth GDV RM500 million. IJML and Talam Corp Bhd (50:50 JV) to develop a high-end condominium-cum-retail podium development along Xian Road, Changchun, Jilin Province. Changchun is one of China’s largest automotive cities. Site is located along the city’s prime main road and has obtained development approvals.

* Strong balance sheet. Current net gearing stood of 0.25x is healthy versus sector range of 0.20x-0.40x. Ample room to gear up for reclamation of The Light-Phase II, given large cash pile of RM414 million (at Dec 31, 2009) is more than sufficient to cover estimated reclamation cost of RM224 million.

* Estimating RM1 billion to RM1.3 billion sales for FY10-11E, implying FY2010-11E net profit of RM104 million (+103% y-o-y) – RM161 million (+55% y-o-y). Unbilled sales remain strong at RM800 million (excluding c.RM200 million bookings sales) as at Dec 31, 2009 with sales touching the RM1 billion mark. Key earnings drivers are its townships (e.g. Seremban 2), The Light and en bloc sale of AEON Mall @ Melaka.