Johor: Ready… Get set… Go!
We recently visited Johor to investigate its population
growth dynamics since many of the 2012 ‘tipping point’ elements of Iskandar
Malaysia (IM) are coming on line. Although we are bearish on the overall
Malaysian property sector, our findings reaffirmed our bullish stance on the
Johor Property Market. Our Top Pick for developers
remain as UEMLAND (OP; TP: RM2.65) because it has the largest exposure in Johor
(c. 50% sales from Johor) compared to the others under our coverage (<30%
sales from Johor). IJMLAND’s (MP; TP: RM2.28) Sebana Cove project will be a
catalytic one but will only kick off in CY13 even as its overall sales is
expected to slow down due to softer Klang Valley and Penang sales. Although Johor
sales have picked up for township developers like SPSETIA (Accept Offer@RM3.95)
and MAHSING (UP; TP: RM2.05), their overall sales are still heavily driven by
the softer Klang Valley market. E&O (UP; TP: RM1.49) will also be another major
beneficiary given its Wellness Center @ Medini (GDV c.RM3.0b), which is a JV between
E&O (50%), Khazanah Nasional (25%) and Temasek Holdings (25%); however, we
believe significant sales from the project will only be from FY14 onwards as it
is still in the planning stage. Our Construction Analyst meanwhile remains
bullish on WCT (OP; TP RM3.85) as Iskandar region will be one of key drivers
for its construction order book replenishment in 2012.
Mass housing play.
Our trip’s main emphasis was on mass market housing, allowing us to determine the
true population growth potentials, or IM’s final puzzle piece. We visited the
following developers projects which are in the ‘affordable’ price range of
<RM500,000/unit and the upgraders market of RM500,000-RM1m/unit; 1)
“Affordable”: UEMLAND (Nusa Bayu, Nusa Idaman), WCT (1 Medini Residence) and
IJM Land (SuriaMas@Larkin, Permas Jaya); 2) Upgraders: SP Setia (Setia Eco Cascadia), IJM Land (Nusa Duta).
Strong demand
observed in the mass housing segment of <RM500,000/unit. Demand has been
largely driven by Malaysians working in Singapore, followed by Singaporeans.
Johor’s residential demand is more organic as the bulk of the mass housing
segment is driven by first home owners, followed by upgraders, and this is
supported from the visible occupancies of the ongoing townships. We also
gathered that a sizeable number of Malaysians working in Singapore are
considered low to mid income earners in Singapore. However, their stronger
purchasing power, on the back of favourable Singapore Dollars, enables them to
purchase Malaysian mid to mid high-end residentials. It also explains why the
impact of the tighter mortgage evaluation criteria appears less severe in Johor
vs. Klang Valley. We would like to highlight that UEMLAND will be ramping out
its mass housing products with Nusajaya West (GDV RM18b) in 2H12.
It is all coming
together. Legoland’s development appears to be on track for its grand
opening in Sep-2012, and tickets (including annual pass) are being sold
currently. Educity components such as NuMED that has recruited two years’ worth
of students, while the other upcoming Educity components like Marlborough
College, Trust School, University of Southampton and common facilities (e.g.
stadium & sports complex), will be delivered by end CY12. Major highways
and interchanges are also all in place, reducing travel time by 30%-50% when
compared to our earlier 2007-08 visits.
Sebana Cove is a
‘windfall’ project. IJMLAND’s project is located on the eastern side of
Johor and forms a part of IM and sits above an Oil & Gas (O&G)
goldmine. Including PETRONAS’ RAPID portion, total land dedicated for O&G
amounts c.13,000ac, catering to local and international O&G players like
Dialog (OP; TP: RM2.80), Gulf Asia Petroleum and potentially China Petroleum
Corp. We reckon Sebana Cove will be a major earnings driver for IJMLAND (launch
likely in CY13) as there are very few developers in the area with all other
land acquisitions in Desaru/Pengerang having been frozen by the authorities due
to the O&G developments. We reckon Sebana Cove’s current GDV of RM1.4b is
too conservative and we estimate it could rise up to RM2.6b.
Developers under our
coverage are upbeat on Johor. IJMLAND believes its FY13E Johor sales could
hit historical highs of RM300m (FY12E c. RM200m); this is helpful since its
Penang sales will likely be softer. Other established Johor developers like
SPSETIA and MAHSING are also reporting strong positive trends. For the last
financial year, Johor residential projects made up 29% of annual sales for SP
Setia and 6% for Mah Sing.
Source: Kenanga
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