IGB Corporation - Land appears pricey but justified by good location BUY

- It was announced on Bursa that IGB and Selia Pantai – in relation to the MoU signed earlier for a mixed commercial development at South Key on a piece of land measuring 36acres – have signed two conditional shareholders’ agreements for the establishment of two 70:30 joint-ventures.

- At the same time, both IGB and Selia Pantai have also signed an SPA for the acquisition of the land for RM259.1mil or RM165psf. This appears pricey, but the development is located in a prime area within Johor Bahru with excellent accessibility. Pursuant to the JV, IGB’s portion would be circa RM181mil, which would be funded by borrowings and internal funds. 

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

- It 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 the Sultan Iskandar Customs, Immigration and Quarantine (CIQ) complex. Apart from the location, there is a lack of supply of new malls within the JB area; hence, we believe the mall would be a success. 

- As we have highlighted earlier, we estimate the mall to provide an additional NOI of RM50mil p.a. (or accounts for 14% of our NOI estimate for FY12F) 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.

- However, we are not able to provide an estimate for the GDV of this development – excluding the mall – due to the absence of details especially on the development mix. Hence, we are not factoring it into our model at this juncture.

- 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 follow up with an office and hospitality REIT, subsequently. Our fair value is maintained at RM3.50/share

Source: AmeSecurities