Iskandar laggards may gain on development's rising profile

KUALA LUMPUR: Excitement in the Iskandar Development Region (IDR) is stirring again, with the announcement that it too may soon see a Mass Rapid Transit (MRT) project and a commuter train system as well as considerable news flow of strategic tie-ups and developments there.

While higher-profile possible IDR plays have seen their share price gain substantially year-to-date (YTD), such as UEM Land Holdings Bhd (up 9% YTD), Ekovest Bhd (up 56.3%) as well as players in the commuter system Malaysia Steel Works (KL) Bhd (Masteel, up 15.7%) and KUB Malaysia Bhd (up 10.5%), others like Bina Puri Holdings Bhd (down 15% YTD) and WCT Bhd (down 6%) seem to have lagged behind.

Sources have indicated that in the coming months, more new announcements involving developments in Iskandar, including a thriving central business district, are to be revealed.

Property pundits have started taking an interest in the IDR again, following the merger between UEM Land Bhd, which is the largest landowner in Nusajaya, a key component of IDR, and Sunrise Bhd in November last year, in addition to news of warmer ties between Malaysia and Singapore.

This interest is expected to be boosted by a higher profile for the IDR through a three-day event to be hosted by the Iskandar Regional Development Authority (IRDA) later this month showcasing the region to investors and the public.

In a recent note, OSK Research said it expected the recently signed 50:50 joint venture between sovereign wealth fund Khazanah Nasional Bhd and Singapore's Temasek Holdings for the development of 167ha of land for a wellness centre in Danga Bay, Johor, to cement warming bilateral ties as well as boost confidence among Singapore investors.

Modelled after Shenzhen
To recap, Iskandar Malaysia was launched in 2006 as one of the country's growth corridors. Spanning a total of 221,634ha, it is about three times the size of Singapore and is said to be modelled after the special economic zone of Shenzhen to some extent, which has benefited from its proximity to Hong Kong and Macau.

By 2025, Iskandar is estimated to have a working population of about 1.35 million, or 43% of Johor's projected population of 3.17 million, according to the official website.

In terms of investment, the region is expected to see RM382 billion flowing into the region by 2025, with manufacturing, property development and tourism earmarked as key areas of focus.

Now the country's largest property company by market capitalisation on Bursa Malaysia following its merger with the reputable lifestyle developer Sunrise, UEM Land is widely regarded as one of the key beneficiaries of Iskandar.

According to OSK Research, UEM Land's Nusajaya landbank spans 8,027ha, making it one of the largest property developments in Southeast Asia, with four signature developments within — Kota Iskandar, the Southern Industrial and Logistics Clusters (SILC), Puteri Harbour Waterfront Development, Afiat Healthpark, and Nusajaya Residences.

With 1,940ha still undeveloped within the Nusajaya area, it is understood that UEM Land is looking at tie-ups with other local developers as its strategy for the future.

Since the acquisition of Sunrise, analysts and fund managers have touted UEM Land as one of their top picks this year, as the company is expected to embark on a new strategy to develop its landbank.

UEM Land, which ended at RM2.66 last Friday has risen 9% YTD and doubled over the last year. It hit a 12-month high of RM3.40 on Jan 13 this year.  

Analysts expect the company to benefit from Sunrise's strong branding and near-term earnings, as well as the expertise of Sunrise chairman Datuk Tong Kooi Ong in helping plan the development.

Tong is the chairman of The Edge Communications Sdn Bhd, which publishes The Edge and The Edge Financial Daily.

Another property stock that may be poised to benefit from Iskandar Malaysia is Ekovest, which sources had previously said could see the injection of its 150ha Danga Bay project into the company. Danga Bay Sdn Bhd and Ekovest see a common shareholder in Datuk Lim Kang Hoo.

However, the company, which also undertakes construction and is poised to benefit from the Kuala Lumpur River of Life project to rehabilitate the Klang River, is not under the coverage of any research house. Its trading volume, which was heavier at the start of the year, has since petered out somewhat.

Ekovest shares have been the best performer among the Iskandar Malaysia plays this year, gaining 56.3% YTD to RM3.11. As at Dec 31, 2010, its net assets per share stood at RM1.94.

Another counter that has significant exposure in the region is low-profile state-owned company Tebrau Teguh Bhd, one of the largest landowners in the Johor Bahru city centre. YTD, it has only gained 1.4 sen, closing at 75 sen last Friday.

According to its 2009 annual report, Kumpulan Prasarana Rakyat Johor Sdn Bhd owned 41.15% equity interest in Tebrau Teguh as at April 27, 2010.

Other property players with some exposure in Iskandar Malaysia include Dijaya Corp Bhd and Malaysia Pacific Corp Bhd (MPC).

Dijaya, which is synonymous with the development of the Tropicana Golf and Country Resort and Tropicana City Mall in Petaling Jaya, made its first foray into Johor last August.

It acquired 12.5ha of prime land in Danga Bay, in a joint venture with Iskandar Water Front Sdn Bhd, for RM308.5 million. The land, which was bought for RM190 psf, will be developed into an integrated commercial, residential and hotel project with a gross development value of RM3.8 billion over 12 years.

Low-profile MPC, which was in the spotlight recently when it made a bid for Pos Malaysia Bhd, has a total of 213ha in Iskandar Johor. Its two main projects are LakeHill Resort City and APTEC City.

While Dijaya has climbed about 9.7% YTD to end at RM1.13 last Friday, MPC has lost 3.5% YTD to 41 sen. It is worth noting that both stocks are trading below well their book value.

As at Dec 31, 2010, Dijaya and MPC's net assets per share stood at RM1.98 and RM1.23 respectively.

As the second largest private landbank owner in Iskandar according to reports, MMC Corp Bhd is also expected to benefit.

It has 1,437ha of land there, with its Tanjung Bin land spanning 528ha and the designated free-trade zone area in Senai covering 909ha.MMC ended trading at RM2.74 last Friday, shedding 1.4% YTD.

Contractor WCT, which has lost 6% YTD to end trading at RM3, is undertaking a high-rise development in Iskandar.

It recently launched its 1 Medini residence with about RM200 million sales in the bag. The project, comprising 1,332 condominium units and a 68,800-sq ft commercial area, is expected to be completed in 2015, according to reports.

Another construction player and property developer in Iskandar, Bina Puri, has lost 15% YTD, ending trade last week at RM1.19.

Bina Puri last year signed an agreement with Iskandar Investment Bhd's subsidiary Medini Land Sdn Bhd to develop 1.05 million sq ft within Medini for a mixed-use urban development, the first phase of which is expected to be completed by mid-2011.

Infrastructure players are not likely to miss out. At the recent Invest Malaysia 2011 forum, IRDA's chief executive announced a plan to build a 500km MRT project.

The construction and infrastructure-related players slated to benefit from Iskandar Malaysia are Masteel and KUB, which earlier this year proposed a rail transit system in Iskandar worth an estimated RM1.23 billion.

Apart from the rail transit system, Masteel's shares have also gained as investors started to appreciate its undemanding valuations and exposure to higher infrastructure spending under the 10th Malaysia Plan.

Another counter touted as a favourite to secure some jobs is Johor-based Kimlun Corp Bhd, which has gained 12.2% YTD to end last week's trading at RM1.75. OSK Research and Kenanga Research like the stock due to its standing in the southern state, as well as its track record in supplying reliable pre-cast concrete products.

Sunway Holdings Bhd, which in March this year secured a RM258 million contract to build part of the Legoland Theme Park in Johor, may also be poised to benefit.

Sunway, which is to be merged with Sunway City Bhd (SunCity), has gained 5.8% YTD. It ended trade at RM2.37 last Friday.

IRDA has said that it expects 2012 to be the year where Iskandar really takes off.

With so many counters with a foothold there still under the radar, investors might do well to keep a close eye on any new developments that may be announced in the coming months.