IOI Properties maybe key beneficiary of MRT

IOI Properties Group Bhd
(Oct 31, RM2.75)
Maintain “buy” with target price (TP) of RM3.38:
IOI Properties Group (IOI Properties) remains our top pick for big-cap property stocks. Since the proposed stops for the mass rapid transit (MRT) Line 2 are still not firmed up — given that the railway will end at Putrajaya — IOI Properties has emerged as a potential key beneficiary of the project.

It has more than 500 acres (202.34ha) of land bank there, and the IOI City Mall will likely be a valuable asset.

With this MRT line, the gross development value (GDV) for its land bank in Putrajaya will likely rise further.

We believe the market may have overlooked the potential value of IOI Properties’ land bank and property assets.

With the latest green light from the government to go ahead with the MRT Line 2 project, IOI Properties emerges a potential key beneficiary.

According to the information provided by Gamuda Bhd, Line 2 will run from the Sungai Buloh depot to Putrajaya, and the proposed stops include Kepong, Sentul, KLCC, Cheras Sentral, Serdang, Universiti Tenaga Nasional (Uniten) and Precinct 14, Putrajaya.

IOI Properties owns over 500 acres of land in Putrajaya, called IOI Resort City.

Currently, the existing property assets there include 1 & 2 IOI Square, Putrajaya Marriott Hotel and Palm Garden Hotel. Another IOI Resort hotel is currently under construction.

The IOI City Mall, with a net lettable area (NLA) of 1.4 million sq ft, will have its soft opening in November. About 90% of the retail space has already been leased out and key anchor tenants include Parkson, Tesco Premium, HomePro and Index Living by Aeon.

Our checks reveal that phase 2 of the mall — which will be constructed at a later stage — will have a NLA of 900,000 sq ft.

As phase 2 will be in close proximity to Uniten, the proposed Uniten MRT station could potentially be located there. If this materialises, the IOI City Mall will likely see long-term value appreciation, which would spur IOI Properties’ revised net asset value (RNAV) rerating.

Note that IOI Properties currently already has strategic land bank in Puchong fronting the four light rapid transit (LRT) stations currently under construction.

IOI Properties’ second condominium project in Putrajaya, after Puteri Palm in 2011, has achieved a 70% take-up since its launch in August.

The Clio Residences has an estimated GDV of RM180 million, at an average selling price of RM650 per sq ft.

We expect the future GDV, currently at RM3.1 billion, of the remaining Putrajaya land to expand, given the boost from this latest infrastructure development.

We maintain our “buy” rating and RM3.38 TP at a 30% discount to RNAV. — RHB Research Institute, Oct 31

This article first appeared in The Edge Financial Daily, on November 3, 2014.

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