IJM Land (IJMLAND) is buying 50% of a company, owned by Tan Sri Robert Tan, owning 95.83 acres of land in Tebrau Johor for RM51m. The land is surrounded by matured townships and fronts a main road. The price tag of RM24 psf is considered fair. We estimate a GDV of RM520m for IJMLAND’s portion for a mass housing project priced at RM410,000/unit. We are positive on the acquisition as we expect Johor to buck the bearish property trend. There will be no earnings impact in FY12-13E as any launch will likely take place towards end FY13E. Impact to our RNAV is negligible given the size of IJMLAND’s pipeline  projects (total GDV of RM24b).  There  is  no  change  to  our  TP  of  RM2.28  based on a 21% discount* to our FD SoP RNAV of RM2.88. We maintain a Market Perform on the stock as we reckon that its Sebana Cove@Johor play will only be more exciting next year. Additionally, 75% of its sales are still derived outside of Johor. 

Buying Tebrau@Johor land for RM51m. IJMLAND has entered into a conditional Share Sales and Purchase Agreement to acquire a 50% equity interest in Nasa Land S/B (NLSB), subject to conditions precedent (see below). NLSB is the developer of a mixed development project called Desa Palma. The project has a remaining 95.83 ac (net land) and is located in the a matured residential area, surrounded by well known townships like Setia Indah, Mount Austin, Taman Desa Tebrau and within a short driving distance to AEON Tebrau City. 

Land price of RM24 psf is considered fair. We understand that the land could be fronting a main road. It has also been converted and subdivided into individual titles. Hence, the pricing is similar to smaller plots of land and is not comparable to SP Setia’s acquisition of its Tebrau land back in Jan-2011 for RM11 psf (266 ac), which is located in a more secluded area and was not subdivided. We see no issues with the group fully funding the acquisitions internally as the group is in a net cash position with a cash pile of RM711m. 

Estimate GDV of RM510m  for IJMLAND’s portion. Since land cost is cheap, we estimate that land cost here will make up 10% of the GDV; if so, we can expect development margins of between 25%-30%  depending on the development concept. This is also supported by the assumption of 13 units per acre for mass housing township priced at RM410,000/unit. In the area, standard double storey terrace homes are priced between RM350,000-RM550,000/unit. There will be no earnings impact  in  FY12-13E  as  any  launch  will  likely  take  place  towards  end FY13E. 

Positive on the acquisition. Our recent visit to Johor has us believed that Johor could buck the bearish property trend given its favourable population growth dynamics and catalytic plays (e.g. O&G) (Refer to Property Sector Report, 16/3/12). IJMLAND expects to record historical high sales in FY13E of RM300m vs. FY12E’s RM200m. We also do not discount possibility of IJMLAND buying up the remaining 50% stake in NLSB. 

*Discount is based on 1.2x FY13E PBV @ -1.0SD of average since RTO. Conditions precedent. NLSB must secure financing facilities to repay advances of RM109.8m, based on terms agreed by all parties. Others are more due diligence exercises.  

Source: Kenanga