IGB Corporation - MidValley City the sequel in Johor Bahru BUY

- IGB and Selia Pantai – developer of SouthKey – yesterday signed a conditional MoU to establish a 70:30 jointventure to co-develop 3 parcels of leasehold land measuring 36acres within the SouthKey development. This is not a surprise given that IGB has indicated it has been looking for pockets of land in Johor for development.

- Selia Pantai is a public-private partnership between Selia Group and the Johor State Government via its arm, Kumpulan Prasarana Rakyat Johor (KPRJ).

- The JV intends to co-develop a megamall and possibly other commercial/residential properties including hotel, serviced apartments and offices. We note that the megamall would have an NLA of circa 1.5mil sf – almost as big as MidValley MegaMall -with close to 7,000 parking bays. 

- To recap, SouthKey is a mixed commercial development spanning over 300 acres within Permas Jaya which enjoys frontage of Jalan Tebrau, Jalan Bakar Batu as well as the recently-completed Eastern Dispersal Link. It is located just five minutes away from Sultan Iskandar Customs, Immigration and Quarantine (CIQ) complex.

- We view this positively because:- (1) we believe the mall would be a success given the area’s sizeable catchment population of more than 120,000 and the lack of quality malls within it. 

- At present, the total NLA in Johor Bahru is estimated to be at 11.6 million sf with an average occupancy rate in excess of 80%.  In the pipeline includes a lifestyle mall (GFA: 1mil sf) by Iskandar Investment Bhd located at Medini North and the redevelopment of Komtar retail mall (GFA: 0.4mil sf) in Johor Bahru CBD.

- (2) IGB is rebuilding its retail mall portfolio which would provide a new stream of income and is very much in-line with its business model of developing and growing investment properties. 

- We estimate the mall would provide an additional NOI of RM50mil (or accounts for 14% of our NOI estimate for FY12F) p.a to IGB, assuming an NLA of 1.5mil sf, a conservative rental rate of RM5psf and occupancy rate of 70%. Plus assuming a 7% cap rate the mall would provide a decent 5% uplift to our NAV estimate.

- We continue to like IGB Corp because the group is looking at crystallising the deep value of its retail malls in Mid-Valley City – triggered by high implied capital values. The group would likely to follow up with an office  and hospitality REIT subsequently. Our fair value is maintained at RM3.50/share.

Source: AmeSecurities