IJM Land - Share price discovery to fair value taking hold! Buy

- We reaffirm our BUY rating on IJM Land, with an unchanged fair value of RM3.80/share based on a 10%discount to our fully-diluted NAV of RM4.20/share.

- Despite the recent bounce in its share price, the valuation re-rating cycle is still at its infancy. Several catalysts are unfolding to prod a belated appreciation of IJM Land’s rapid ascendancy as a bellwether property stock.  

- On the macro front, we expect a return of pent-up residential demand after an extended lull since 3Q11. IJM Land’s debut of its highly anticipated township Bandar Rimbayu (GDV: RM11bil) in September this year would surely be a sell-out. Early signs of robust demand  are already evident from the overwhelming registration (>6,000) and higher indicative selling price (RM580k/unit).

- Bandar Rimbayu alone would propelled pre-sales by 35% to RM2.5bil in the current fiscal year FY13F, based on the launch of Phase I (526 units) and Phase II (500 units) of landed homes with a combined GDV of RM650mil. Presales at Bandar Rimbayu would step to RM800mil in FY14F, reaching RM1.0bil in FY15F. With Bandar Rimbayu as the cornerstone, IJM Land’s total pre-sales are expected to surge to RM3.3bil in FY14F, and RM4.0bil in FY15F. 

- IJM Land is also moving to capitalise on the maturity of its residential projects and the high investment appetite for retail assets. It is accelerating plans to develop suburban retail malls in at least three prime sites – Seremban II, The Light and in Tebrau Johor. Talks with retail JV partners are ongoing. Such a move, if it materialises, should underpin NAV growth from value creation.

- At some point, parent IJM Corp may boost trading liquidity in IJM Land by paring its current stake of 66% to accelerate share price discovery to fair value. We believe a sell-down may hinge on the turnaround from its depressed construction division (9% of IJM Corp’s profit currently), which may take hold by FY14F.

- We do not rule out market talk of potential value-accretive acquisitions, given its strong FCF and balance sheet.       

- On the flipside, we understand that the group is currently reconfiguring the plans for Light Collection 3 (GDV: RM365mil) to enhance the appeal of the development. This project is targeted to be re-launched in 4Q2012. 

- We are raising our FY14F and FY15F estimates by 3%-5% to RM283mil-RM349mil – representing 19%-23% growth –  to reflect the surge in IJM Land’s pre-sales, to be anchored by Bandar Rimbayu.

Source: AmeSecurities