KUALA LUMPUR (Feb 17): Kenanga IB Research has initiated coverage on KSL Holdings Bhd at RM2.15 with an “Outperform” rating and target price of RM2.76 and said despite its large Johor exposure which had been perceived to be overplayed due to rising incoming house supplies (especially high-rises), it liked KSL given its exposure in the locally driven mass market segment coupled with its ability to price its product competitively due to their low land costs.
In a note Tuesday, the research house said that aside, one third of KSL’s income stream was derived from investment properties which offer earnings resiliency should property sales performed worse than expected; it said notably, KSL City Mall and Hotel was one of the larger malls and better managed hotel in Johor Bahru town centre.
Hence, Kenanga IB Research said it was conservatively estimating FY15-16E earnings of RM310 million (+6%, YoY) and RM348 million (+12%, YoY), based on FY15-16E sales assumptions of RM988 million-RM993 million, respectively.
“Our target price of RM2.76 is based on 61% discount applied to its FD RNAV of RM7.07 which is within the discount range (60%-65%) pegged to Johor-based developers under our coverage i.e. Crescendo and UEMS.
“At our target price, the implied FY14-15E PER of 7.4x-7.0x is still cheaper compared to its mid-cap peers which are trading at 8.2x-7.5x, respectively,” it said.
The research house said it admitted that the Malaysian property landscape would be challenging this year, particularly 6-9 months after GST implementation, so share price could be volatile.
“However, we reckon that the deep values of KSL should offer some valuation downside risks to current levels while we believe this year’s volatility in property share prices should offer good entry points for long-term positioning of the stock,” it said.