IJM Land - Attractive margins for maiden London venture Buy

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

- IJM Land announced that is venturing into London for a development of one block of five-star hotel-cum-residential apartment and three blocks of residential apartments with a total GFA of 650,000sf. 

- The development, which has a GDV of GBP280mil (RM1.4bil), would be on a 2.7acre site in Central London.  The property is located above the National Rail and DLR Railway Lines adjacent to the Royal Mint Street. 

- The location is certainly attractive, where it would have a view of Tower of London, Tower Bridge and River Thames.

- The development will be carried out via a 51:49 jointventure with Lite Bell Consolidated – whereby the JVCo will acquire the 999-year lease for GBP20mil (RM100mil) with detailed planning consent which was granted in April 2012.

- Apart from the location, we view this acquisition positively because of the cheap entry cost, whereby land cost accounts for only 7% of the GDV.  Compared to the Battersea land recently acquired by Sime Darby-SP Setia consortium, IJM Land’s land cost works out to GBP170psf (or RM850psf) or 30% cheaper vis-a-vis GBP235psf of the former. 

- While impact on NAV is minimal given the relatively small value of the development versus estimated remaining GDV of over RM20bil, there will be a strong impact on earnings. Management has guided for a handsome pretax margin of 30%-40%. We estimate this development to generate circa RM100mil in pretax profit every year and would bump-up our earnings for FY14F and FY15F by 10% to 15%. 

- Another advantage to IJM Land is that it will have access to the pool of existing buyers in Malaysia on top of the readily available of property buyers in London.

- On the flipside, we continue to be excited about Bandar Rimbayu – to be launched in September. This development alone would propel 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. 

- Pre-sales at Bandar Rimbayu would step up 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. 

Source: AmeSecurities