IJM Land - JV for land in Pantai Dalam BUY

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

-  IJM Land has announced that it had entered into a JVA – with a 40:60 profit sharing agreement – with Amona Development to jointly participate in a development in Kerinchi/Pantai Dalam, next to Bangsar South. Amona Development is the registered proprietor of this land as per its privatisation agreement with DBKL. 

-  The leasehold land measures 57.8acres (2.5 million sf) and is accessible via Jalan Kerinchi from the Federal Highway at northern side of the land and via Jalan Pantai Dalam and the NPE at the western boundary. Public transport is also within a short distance of the LRT and KTM Commuter.

-  Based on the RM331mil amount payable within six months – which includes a minimum guaranteed profit – we are of the view that the land cost of RM131psf is appealing considering its close proximity to Bangsar where land costs are estimated to be at about RM300psf. 

-  We estimate the development to have a breakeven of RM420psf. This is based conservative assumptions of a plot ratio of 2x, efficiency ratio of 75% and construction cost of RM200psf-RM250psf. 

-  Based on a selling price of RM600psf – which is at the lower end of the current asking price within Bangsar South – IJM Land would be able to yield a decent development margin of 30%. There is plenty of upside given that our assumptions are rather conservative.

-  We estimate this development to provide a decent boost to our NAV, by circa 5%-6% and less than 5% impact on our FY15F estimates given that the maiden launch is only expected to happen in late 2013/early 2014. We are not changing our estimates at this juncture as the JV deal has yet to be completed.

-  While the focus would be very much on its flagship Bandar Rimbayu, we view this deal positively as it will strengthen IJM Land’s presence within the Klang Valley and allows the group to showcase its expertise in delivering quality mixed commercial properties.

-  IJM Land remains undervalued by the market, currently trading at a steep discount of 45% to its fully-diluted NAV. While this is mostly due to weak sentiment, we believe the discount would narrow soon, to be underpinned by the expected strong sales from the launch of Bandar Rimbayu.

Source: AmeSecurities