Property Developers - Johor is shaping up nicely

We recently visited Johor (Crescendo Corp’s Nusa Cemerlang Industrial Park (NCIP), SPSETIA’s Setia Sky 88, IJMLAND’s Nusa Duta, WCT’s  1Medini, UEMLAND’s East Ledang and Puteri Harbour) to assess the changes in momentum of Johor’s property market, following our already bullish feedback from our last Johor study trip back in Mar-12, the commencement of Legoland and the attached Mall of Medini in Sep-12.

Meanwhile, Newcastle University Medicine Malaysia (NuMed) is already almost a year into its operations while Marlborough College has started its first intake of students. Additionally, there is talk that the Johor-Singapore MRT could launched next year with a construction period of 2014-18. It will certainly help narrow the gap of Johor property prices with Singapore. 

Extremely POSITIVE on Johor’s property market.  We turned positive on Johor’s property market about a year ago and came back from our visit feeling extremely bullish as the two major ingredients of success are in motion; 1) Singapore-Malaysia G2G collaborations; 2) population drivers, including employment and affordable housing content. The unusual buyers profile and demand trends indicate an extremely resilient market as there is a lack of supply of industrial spaces and concept-play residentials, whilst Singapore’s housing affordability issue has made Johor an attractive option. We expect to remain POSITIVE on Johor for the next 24 months, barring any unforeseen circumstances and assuming minimal general election (“GE”) risks. 

However, we maintain NEUTRAL on overall developers, although a potential upgrade in UEMLAND could push our call to an OVERWEIGHT. Our calls are as followed; 

1) UEMLAND has disappointed in terms of its ability to meet its lofty FY12E sales target of RM3.0b (we estimate RM2.7b) as 7M12 has also registered RM0.9b sales whilst the remaining are expected to be driven by an en bloc sale of Angkasaraya (likely delayed), CS2 @ Puteri Harbour, as well as new phases of Arcoris and East Ledang. This may cap further upsides to share price until we have clarity on FY13E sales potentials, assuming no further delays in launches. However, we do not deny that UEMLAND is the direct proxy to the Johor property market play and Nusajaya should fare well particularly with its catalytic tie-up with Ascendas to kick-start Gerbang Nusajaya.  We also believe the stock is largely news flow driven as its share price reacted positively to the Gerbang Nusajaya news. As a result, we are  reviewing our call on UEMLAND (MP; TP: RM2.07) with a potential upside bias, pending our upcoming company visit.

2) Our Construction analyst continues to recommend  OUTPERFORM on WCT with a TP of RM3.09. 

3) We continue to like  IJMLAND (OUTPERFORM; TP: RM2.60) because of its sizeable affordable product offerings, net cash position, sizeable landbank exposure in Johor and potentially more overseas projects.

4) Although we are bullish on Johor, we continue to recommend  MARKET PERFORM on SPSETIA with TP of RM3.80 due to liquidity issues.

5) Crescendo (NOT RATED) is not under our coverage at the moment, but we think the group has deep value based on our back-of-the-envelope FD RNAV of RM3.26/share, implying that the stock is now trading at a steep 43% discount to its FD RNAV (note developers under our coverage are being valued at 10%-53% or an average 32% discount to their FD RNAVs). It also enjoys stronger-than-peers dividend yields of 5.5%.

Source: Kenanga