Valuation table

Key announcement

The Prime Minister of Malaysia, Datuk Sri Mohd Najib Tun Razak, announced yesterday (March 30) that several parcels of land in Jalan Stonor, Jalan Ampang, Jalan Lidcol, Kuala Lumpur would be put out to tender to the private sector. He was quoted as saying that this asset, if not developed will be wasteful and the government will incur cost of maintaining it. In addition, the government and the EPF will form a JV to promote the development of 3,000 acres of land in Sungai Buloh into a new hub for the Klang Valley. This will lead to over RM5 billion of new investments being made.

Sales of land

The call for the tender for land in Jalan Stonor, Jalan Ampang and Jalan Lidcol should be viewed as a golden opportunity for developers to participate in the property development in the KLCC area. It should enlighten developers’ interests given that vacant land surrounding the KLCC is becoming scarce.

From our tele-conversation with a few developers, we note that most developers are likely to bid for the land, given the premium and exclusivity of the KLCC address in Malaysia. Moreover, the influx of FDI is expected to boost the demand for high-end properties in this area. As far as the price is concerned, there is a piece of land located in Jalan Ampang asking for RM1450 psf, according to iProperty.com. Meanwhile, we note that the latest transacted price for a piece of land in Jalan Kia Peng, which is close to Jalan Stonor, was at RM2,000 psf.

Another hub in Sungai Buloh

Similarly, we view the JV between the government and the EPF to develop 3,000 acres of land in Sungai Buloh as well as promoting it as a new hub for the Klang Valley should do more good than harm to developers. Specifically, we do not believe this development will intensify competition instead it would complement existing development when the JV installs more basic amenities and infrastructure. In otherwords, land value in Sungai Buloh is expected to increase in the future. As such, we expect developers (see Table 1) with land bank for existing and future development to benefit.



Forecast

Maintained. Although the positive implication of the two measures would not be felt instantly, we believe it would serve as sweeteners to the buoyant property market, which has been supported by: 1) expected strong economic growth for 2010; and 2) the current low interest rate environment.

Recommendation

We maintain our OVERWEIGHT stance on the property sector. Top pick is Glomac given the group has concluded a few en-bloc sales, boosting its unbilled sales to a record high of RM600 million. In addition, the company has managed to improve its balance sheet quality with net gearing improved to less than 0.1x from 0.5x in FY2008. Also, the management has guided that the company would distribute dividend of at least 7 sen for FY2010, yielding 6%. Glomac is valued at RM1.85 based on 12x CY2010 EPS. Besides that, we also like S P Setia and KSL given its encouraging sales performance. Maintain buy on SP Setia and KSL with respective target price of RM5 and RM1.59. As for Crescendo, we remain optimistic that the company would secure a few potential buyers from Singapore for its factory units at Nusa Cemerlang Industrial Park, Johor. However, its current valuation is running ahead of its fundamentals. As such, we maintain our target price of RM1.12 and sell recommendation on Crescendo.


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