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PP 7767/09/2011(028730)

7 October 2010
RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Co mpa ny Updat e
7 October 2010
MARKET DATELINE

IJM Land Share Price


Fair Value
:
:
RM2.62
RM3.18
Canal City Land To Kick Off End 2011 Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (IJMLAND; Code: 5215) Bloomberg: IJMLD MK


Net # Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Mar (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2010 1,101.1 108.7 9.1 97.4 28.6 - 18.9 2.2 6.8 26.3 0.8
2011F 1,309.7 140.5 12.7 38.6 20.7 15.9 6.6 2.0 10.9 25.1 0.8
2012F 1,517.5 214.9 19.4 53.0 13.5 17.1 10.8 1.8 11.3 20.7 1.1
2013F 1,640.6 235.8 21.3 9.8 12.3 18.0 8.7 1.6 11.3 17.3 1.9
Main Market Listing /Non-Trustee Stock # Normalised * Consensus Based On IBES Estimates

♦ A large Canal City township coming in end 2011. Canal City land is Issued Capital (m shares) 1,107.9
staged to become a major township development for IJMLD in the coming Market Cap (RMm) 2,902.8
Daily Trading Vol (m shs) 3.5
years. The company has recently signed a termination agreement with the
52wk Price Range (RM) 2.03 – 2.68
state government for the construction of canal. However, the JV company
Major Shareholders: (%)
(with Keuro) will have to incur some cost for the land, relocation of
IJM Corp 62.8
squatters, acquisition of replacement oil palm land for squatters etc. We GIC 7.3
estimate that the effective land cost would be around RM4-6 psf, which is EPF 5.8
rather attractive, as it is getting very difficult to secure a large parcel of
land in Klang Valley. At a preliminary estimate, the leasehold development
FYE Mar FY11 FY12 FY13
will worth a GDV of RM4bn, but we believe there is upside potential given EPS chg (%) 4.9 12.0 9.3
IJMLD’s track record on stepping-up pricing in its property launches. Var to Cons (%) (20.3) 13.4 18.3

♦ Acquired additional small parcels of landbank. IJMLD has also PE Band Chart
gradually replenished its landbank by acquiring some small tracts of land in
Kota Kinabalu and Kuching. A condo will be launched in KK (Jalan Tuaran)
PER = 20x
next year, with a GDV of RM130m and indicative pricing of RM550 psf. PER = 15x
PER = 10x
Management is confident that the sale will be strong given the number of
interested buyers to-date and limited property development in the area,
apart from the d’Banyan Residency by WCT.

♦ Collection II deferred slightly. In total, about RM700m worth of


projects will be rolled out until end FY11. These include The Light Collection
II (GDV RM250m), which is scheduled for launch in Nov 2010. The project Relative Performance To FBM KLCI
is slightly delayed from the initial plan in Aug/Sept, as management is
unsure of buyers sentiment following the rumours of the imposition of cap
on loan-to-value ratio. However, given the previous impressive take-up for
FBM KLCI
Linear, Point and Collection I, we think Collection II should do well. In
addition, Ken Rimba Ph. 3, which was launched 2 weeks ago, was sold out.
IJM Land
♦ Key risks. The risks include: 1) competition from peers; 2) new regulatory
measures to curb the “overheating” property market; 3) delays in launches
and approvals; and 4) country risk.

♦ Forecast. We adjust our FY11-13 forecasts up by 5-12% to incorporate


the earnings contribution of the KK condo and Canal City project. Note
that, IJMLD will recognise a gain on disposal of RM64m in 3QFY11, arising
from the sale of AEON Mall Melaka. This explains the variance of our FY11
net profit forecast and consensus estimate.
Loong Kok Wen, CFA
♦ Valuation. After we update the latest landbank and GDV data, our fair (603) 92802237
value is raised slightly to RM3.18 from RM3.00, based on RNAV valuation loong.kok.wen@rhb.com.my
method. We maintain our Outperform recommendation on the stock.

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♦ Canal City land deal at the final stage. The Canal City land deal is currently at the final stage. Upon
relocation of the squatters and the necessary steps to settle the squatters, the land is staged to become a
major township development for IJM Land in the coming years. From our recent meeting with management, we
gather that IJM Land has recently signed a termination agreement with the state government for the
construction of canal. To recap, under the agreement signed with the previous state government, a 18-km
canal is required to be built for flood mitigation, linking Sungai Klang and Sungai Langat. Since the construction
of the Smart Tunnel, the canal is no longer needed as part of the flood mitigation plan. For the development to
be taken off, the JV company (50% with Keuro) will have to incur some cost for the land, including the
construction of low-cost component for squatters and acquisition of replacement oil palm land for squatters. We
estimate that these would translate to a price of about RM4-6 psf for the land, which is rather attractive in our
view, as it is getting very difficult to secure a large parcel of land in Klang Valley.

Based on management’s guidance, the leasehold development, which will be re-named later, will worth a GDV
of about RM4bn, but we think there is further upside potential given IJMLD’s brand name, innovative value-
added concept and step-up pricing for its property launches. The land is surrounded by a few townships - Putra
Heights (by Sime Darby Property), Kota Kemuning (by Gamuda) and mid-end development Bandar Saujana
Putra (by LBS). There will be two key access to Canal City land: (i) Behind Kota Kemuning; and (ii) Through
Saujana Putra Interchange. We think IJMLD’s range of properties offered will be similar to Putra Heights and
Kota Kemuning. The mid-end development by LBS should not affect the development potential of Canal City
land, considering the IJMLD’s track record on quality, value-added concept with modern design. Furthermore,
we understand that Putra Heights project is almost fully sold and Kota Kemuning is a matured township. Hence,
we expect some spilt-over demand from the neighbourhood.

Chart 1: Location of Canal City land

Source: Company

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♦ Acquired additional small parcels of landbank. IJMLD has also gradually replenished its landbank by
acquiring some small tracts of land in Kota Kinabalu and Kuching (official announcements were not made, as
transaction value was not significant). A condo will be launched in KK (Jalan Tuaran) next year, with a GDV of
RM130m and indicative pricing of RM550 psf. It will be located on top of the hill, with a panoramic view of Likas
Bay and KK city centre. Management is confident that the sales will be strong given the tentative bookings by
interested buyers. In addition, given limited property development in the area, apart from the d’Banyan
Residency by WCT, we think there will be pent-up demand for holiday homes. Thus far, WCT has launched
linked houses (priced at RM1.6m – RM3.3m, with built-up of about 4,300 – 4,600 sqf), 2 ½-storey semi-d’s
(priced at RM2.5m – RM2.7m, with built-up of about 5,600 sqf) and 3-storey villas (priced at RM3.1m – RM4m,
with built-up of 6,700 sqf). Overall take-up rate is about 50%.

♦ Extended landbank for Bandar Utama, Sandakan. Apart from the new landbank in KK and Kuching, IJMLD
has also recently signed an agreement to acquire another 60-acre of land to extend its Bandar Utama
development in Sandakan. After progressive development in Bandar Utama over the years, remaining landbank
is only about 160 acres, from about 300 acres originally. Bandar Utama has been successfully developed thus
far, as property sales picked up since 2006 when CPO price started its rally. The GDV from the additional new
land is unknown yet, but it will have a combination of residential and retail component.

♦ Collection II deferred slightly. In total, about RM700m worth of projects will be rolled out until end FY11.
These include The Light Collection II (GDV RM250m), which is scheduled for launch in Nov 2010. The project is
held back slightly from the initial plan in Aug/Sept, as buyers sentiment is rather uncertain following the recent
rumours of the imposition of cap on loan-to-value ratio. However, given the previous impressive take-up for
Linear, Point and Collection I, we think Collection II should do well. In addition, market response is still “hot”,
as Ken Rimba Ph. 3 in Shah Alam (by Ken Holdings), which was launched 2 weeks ago, was sold out, despite
the negative headwinds. As for Phase 2 of The Light, we expect the land reclaimation to start soon, as the
tender has just completed. Sales from Phase 1 will help to fund the reclaimation cost of Phase 2. To recap,
Phase 2 spans 43 ha. It is designed to be an entertainment, retail and commercial hub, with an estimated GDV
of RM4bn.

Chart 2: Master plan of The Light project

Source: Company

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♦ Buy on privatisation angle? It is widely speculated in the market that IJMLD may be the target to be
privatised by its parent company – IJM Corp (Underperform, FV = RM5.01), which currently has 62.8% stake in
IJMLD. Note that, unlike IOI Properties which was privatised in 2008 due to stock illiquidity, in the case for
IJMLD, liquidity is not a big issue given its 0.95m shares average volume traded over the past 6 months.
Furthermore, although we see further upside potential for IJMLD, valuations are not overly cheap either as a
big cap property stock. Hence, we think the most possible reason for IJMLD to be taken private is the potential
addition of IJM Corp into the benchmark index – FBMKLCI top 30 stocks, following the inclusion of Gamuda
(Trading Buy, FV = RM4.51) in Sept 2010. Note that, IJM Corp is currently one of the FBM Mid 70 stocks and in
the reserve list for FBMKLCI. The inclusion may benefit IJM Corp as it could lead to a re-rating going forward.

If the privatisation materialises, we estimate that IJM Corp may have to fork out about RM1.1bn to undertake
the exercise, possibly by way of cash or issuance of shares, or a combination of both. Assuming RM1.1bn
borrowings is raised to fund the deal, net gearing of IJM Corp may stretch to 0.7x, from the current 0.48x (as
at Jun 2010). By taking over IJMLD, IJM Corp’s market cap will then enlarge to RM8.2bn (from RM7.1bn), vs
Gamuda’s RM7.8bn, based on yesterday’s closing. While it is still premature to confirm the deal, we believe the
privatisation angle is nevertheless a strong catalyst for IJMLD.

Forecasts

Raised earnings forecasts by 5-12%. We adjust our FY11-13 forecasts up by 5-12% to reflect the potential
earnings contribution from the KK condo and Canal City project. Note also that, the discrepancy between our
estimate and consensus forecast for FY11 net profit could be due to the one-off gain on disposal amounted to
RM64m that is expected to be recognised in 3QFY11, arising from the sale of AEON Mall Melaka.

Risks

Risks to our view. The risks include: 1) competition from peers; 2) new regulatory measures to curb the
“overheating” property market; 3) delays in launches and approvals; and 4) country risk.

Valuations and Recommendations

One of our top picks. We maintain our Outperform rating on IJMLD. Our RNAV estimate and hence indicative
fair value is raised slightly to RM3.18, from RM3.00, after we update the latest landbank and GDV data. Given its
strategic landbank exposure spreading across the key regions in Malaysia, we believe IJMLD is still the best
proxy to ride on the continued upcycle in the property sector. Valuations are still relatively undemanding at
13.9x CY2011 earnings compared to SP Setia’s (MP, FV = RM4.95) 20.3x.

Table 3. Earnings Forecasts


FYE Mar (RMm) FY10 FY11F FY12F FY13F

Turnover 1,101.1 1,309.7 1,517.5 1,640.6


Gross Op Profit 249.2 289.9 386.7 415.8
Op Profit 190.8 245.0 349.0 379.8
Int exp (52.0) (53.5) (57.7) (58.9)
Associates (0.3) 8.5 10.5 12.5
Exceptional item 10.3 64.0 0.0 0.0
Pretax Profit 148.9 264.0 301.8 333.4
Tax (33.9) (66.0) (76.1) (86.7)
Minorities (6.4) (8.9) (10.9) (10.9)
Net Profit 108.7 189.1 214.9 235.8
Normalised net profit 100.9 140.5 214.9 235.8
Source: Company data, RHBRI estimates

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Table 4: RNAV breakdown


Projects Remaining Remaining Years to Equity NPV @ 10%
size (acres) GDV (RM mil) develop interest (RM mil)
Northern Region
Permatang Tinggi 153 357 10 100% 27.3
Jelutong 119 6,000 10 80% 518.3
Jelutong 36 800 12 80% 94.3
Bukit Jambul 31 180 6 86% 12.1
Metro East 5 400 4 100% 36.8

Central Region
Bukit Manda'rina 58 626 5 100% 108.6
Laman Granview / Saujana Puchong 40 233 5 100% 35.4
Jalan Raja Laut 2 350 3 100% 34.8
Shah Alam 2 665 1055 12 100% 54.5
SS2, PJ 1 27 2 100% 1.8
Canal City 2,000 4,000 20 50% 165.4
Serenia Garden (Ukay Green) 65 506 6 50% 34.0
Sh'ng Villa (Pandan Bistari) 42 380 5 50% 27.7
Riana Green East, Wangsa Maju - Ph 2 & 3 8 422 4 50% 26.0

Seremban/Melaka
S2 Township 404 771 7 100% 65.3
S2 CC 46 100 5 100% 4.4
S2 Heights 1,281 2,613 12 100% 217.7

Southern Region
Suria Bistari/Suria Heights 10 340 5 51% 15.1
Mount Austin 250 500 10 100% 29.3
Sebana Cove 1,188 1,400 10 70% 93.5
Nusa Duta 45 288 7 100% 29.4
Permas Jaya 10 100 5 100% 8.2

Eastern Region
Bandar Utama, Sandakan 137 770 7 100% 83.3
Bandar Utama, Sandakan 24 227 7 100% 24.5
Jalan Tuaran, KK 7 130 3 100% 15.9
Yen Yen Park, Kuching 6 18 4 100% 1.8
Kuching Riverine 4 250 10 100% 15.4

Overseas
Vietnam NTCC 7 495 6 60% 26.8

Total 6,637 22,843 1,807.9

Unbilled sales 222.8

Investment properties Net BV Market value Surplus


(RM mil) (RM mil) (RM mil)
Hotel 121.2 291.9 100% 170.7

Proceeds from disposal


AEON mall, Melaka 319.4 383.4 100% 64.0

Total 234.7

Shareholders' fund 1,655.4


Warrants conversion 306.8
RNAV 4,227.5
Enlarged shares base (mil) 1,330.5
Fully diluted RNAV per share (RM) 3.18
Discount 0%
Fair value per share (RM) 3.18

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
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Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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actions of third parties in this respect.

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