Property – Malaysia
Hunting For Hidden Gems
Mainstream property stocks are likely to trade range-bound amid a cautious sentiment, as we expect more measures to be introduced in order to dampen speculative activities. Nevertheless, there are still a handful of mid-cap property companies which promise potentially exciting returns, including MPHB Capital, which we believe will be able to monetise substantially undervalued landbank. Maintain MARKET WEIGHT.
What’s New
• Situational plays in focus, but mainstream stocks are range-bound. Although we remain cautious on the property sector, values continue to emerge from more small-mid cap property companies as their balance sheets and earnings prospects have strengthened substantially from the past few years’ robust property market. However, most of the mainstream property stocks will be range-bound and would not re-rate further in the short term.
• More property measures in store? In 2H13, we also do not discount more key controlling measures in the property sector being introduced, including in the state of Johor, to curb speculation and property prices. These include limiting the popular Developer Interest Bearing Scheme, raising property gains taxes, and even reducing loan-to-value (LTV) limits for 3rd residential property loans, taking the cue from yesterday’s LTV tightening in Indonesia.
• Minor hiccups in Iskandar. We understand that some property launches have been delayed by the Johor state’s slow issuance of Development Orders, although this is seen as a minor hiccup.
• For now, minimal impact from new BNM measures. Recall that last week, Bank Negara Malaysia (BNM) announced a new set of measures that included: a) shortening the maximum tenure of mortgage loans to 35 years (from 45 years) in order to curb excessive household indebtedness, and b) shortening the maximum tenure of personal finance to 10 years from 20 years. These measures would only modestly impact property demand and marginally impact prices.
Action
• Focus is still on Iskandar plays, notwithstanding minor hiccups. Among our Iskandar-related picks are Sunway (HOLD) and Eastern & Oriental (NOT RATED), which is slated to launch the iconic Avira Wellness Township in Iskandar Malaysia in 3Q13. Our SOTP-based target price for Sunway, one of the largest land owners in Iskandar Malaysia (IM), has been revised to RM3.39 (from RM3.95) post its 1-for-3 rights issue, which implies 14x 2014F PE. Much of the proceeds from the rights issue will be used to develop its Sunway Iskandar development. Entry price is RM3.20.
• In the small-mid cap area, we see emerging values in MPHB Capital and LBS. We expect rising investor interests on the recently-listed MPHB Capital (MPHBC) and LBS. Both companies trade well below their respective RNAVs and are expected to monetise a substantial portion of their RNAVs that can sustain attractive dividend yields.
Essentials – Glitters among the small-mid caps
• Newly-listed MPHBC could swiftly monetise some of its “hidden” assets. The recently-listed MPHBC provides an interesting value play, trading at around NTA and at 14x 2012 PE multiple. Cash-rich MPHBC (it has 37 sen/share cash) is a holding company of Multi Purpose Insurance and various property assets, which are fully owned or under a JV with Bandaraya (refer to table below). For properties under the JV arrangement, MPHBC has a 22% share in the properties’ realised GDV.
• RNAV could be around RM3.00/share, should the company appeal and succeed for additional compensation on last year’s compulsory land acquisition (to current market price) of its Pengerang land (see table below). We believe RNAV would fetch RM3.00/share.
• Catalysts and event milestones for MPHB are: a) sale of non-strategic landbanks, b) redevelopment of Flamingo Ampang hotel, c) the eventual sale of MPHB insurance, and d) compensation for the compulsorily acquired landbank in Pengerang (expected in 2015 at the latest). While much of its cash will be reserved for future property development forays, we expect MPHBC to dole out a reasonably attractive dividend yield.
• Another hidden gem in the making? We recently met with the management of LBS Bina Group Bhd (LBS MK), which is expected to soon complete the stake sale in one of its landbanks in Zhuhai, China. The transaction will transform LBS into a cash-rich company, which intends to carve out a portion of its sales receipts as special dividends. LBS does not discount the possibility of distributing the RM206.5m in cash as special dividends (54 sen/share) and the remaining promissory notes (RM351m or 90 sen per share) in the future. Thus, LBS’s dividend yield could be sustained at >6% over the next few years.
• Zhuhai land deal completion soon. Recall that LBS recently agreed to sell its 60% stake in a 197 acres of land parcel for HK$1.64b (RM677m) to its JV partner Zhuhai Holdings Investment Group (ZHIG). The sale will be satisfied by HK$500m (RM206.5) in cash, HK$300m worth of shares in ZHIG and HK$850m (RM351m) in promissory notes settled in stages. The deal finalisation is pending both companies’ EGMs at the end of next week.
• LBS trades well below an assessed RNAV of over RM3.69. LBS expects to double its earnings base within three years (from RM37.2m recorded in 2012).
Source: UOB Kay Hian research
Publish date: 12/07/13