YTL Land & Development Bhd (March 28, RM1.83)
Maintain buy at RM1.87 with target price of RM2.70: While we expected The Capers' launch (gross development value about RM380 million) to be successful, the huge turnout last Friday to Sunday was a positive surprise. More than 90% of the 466 units (two blocks of high-rise and low-rise) were taken up at an average selling price (ASP) of RM600 psf (choice units as high as RM800 psf), doubling the last launch price of RM300 psf for Saffron in 2006.
Built-ups range from 695 to 1,965 sq ft, priced from RM689,000 a unit. An early-bird discount of 3% to 5% and 10:90 financing (interest absorption by developer during the 42-month construction period) were also thrown in. The strong sales are commendable in view of the 70% loan-to-value cap for the third house onwards (since November 2010), heightened market uncertainty (Middle East and North Africa crisis and Japan earthquake), and Sentul's reputation as an old, underdeveloped area (ripe for urban rejuvenation).
The stronger-than-expected pace of sales at a new price benchmark for Sentul indicates: (i) under-pricing for an emerging prime area sandwiched between high-end enclaves Kenny Hills and KLCC (Binjai On The Park which recently set a new price benchmark of RM3,000 psf for a penthouse); (ii) rising interest in properties near potential MRT interchanges (Sentul will be just three or four stops away from KLCC on the proposed Circle Line); and (iii) a strong following for reputable developers with a good track record, strong branding and innovative design.
At RM600 psf ASP, implied land value for Sentul works out to RM440 psf (assuming lower initial pre-tax margin of 20% margin, RM350 psf construction cost, RM20 psf interest absorption cost, four times plot ratio). Every 10% increase in ASP would boost implied land value by 44% (yet to factor in potential plot ratio expansion; YTLL aims to gradually increase Sentul ASP to RM1,000 psf). Capers is expected to drive up YTLL's unbilled sales to about RM450 million from about RM60 million previously.
Sentul East is set to see another three new launches — D2 & D5 commercial and Fannell condos worth RM1.4 billion over the next two years. Along with margin expansion, this should boost YTLL's thee-year earnings compound annual growth rate to 47% (potential upside as any contribution from an asset injection exercise by YTL Corp, pending completion in mid-CY2011 has yet to be factored in).
YTLL has the biggest exposure to the potential MRT interchange at 66% of realisable net asset value via Sentul (119 acres), KL Sentral (five acres) and Bukit Bintang (5 acres). — HwangDBS Vickers Research, Mar 28
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