After seven years of development, i-City’s freehold property development and leisure divisions are starting to show robust growth, as evidenced by a 592% growth in I-Bhd’s 9MFY12 earnings. With further sales recognition expected from the RM232m GDV i-Residence (70% sold, 10% pending signing of SPAs) and the RM64m GDV i-SOVO (100% booked) launched last year, coupled with the impressive estimated 4m tourist arrivals to the theme parks in 2011 and 2012, its earnings are expected to grow further in the 4QFY12 and by another 128% in the FY13. The completion of the i-City Interchange (two ingresses and one egress) and a success in the potential joint venture with the Thailand’s largest retail developer, Central Pattana PCL, to build an RM500m shopping mall should help increase property value and sales, improve tenancy rate and attract more tourists into i-City. The stock is still trading below its RM1.58 NTA/share as of 30 Sept 2012. Our price target is pegged to a 10x FY13 PER, translating into 1.4x P/NTA and 3.6% net dividend yield in FY13.
Fast-growing earnings contribution from property development. Besides greater sales recognition expected from i-Residence and i-SOVO in FY13, i-Bhd plans to launch RM300m GDV SOHO phase 1 in the 1QFY13 after Chinese New Year. I-Bhd will also be launching its maiden RM500m GDV freehold luxury condominium, Grand i-Residence, in Jalan Changkat Kia Peng, Kuala Lumpur, sometime in the 3Q/4Q this year, should it obtain the final approval from the authority as scheduled.
Competitive advantages of i-City. These includes (i) an increase in its plot ratio up from 1:3 to 1:5 lifted the gross development value (GDV) from RM3bn to RM5bn (ii) a 24-hour operation for approved outlets and activities to support night tourism (iii) a 21-year temporary occupation license for about 30 acres of neighboring land which can be used to create gardens and car parks (iv) a MSC Malaysia Cybercentre status development (v) i-City Interchange which is expected to be completed by year-end (vi) a potential JV to build a RM500m shopping mall (vii) located in a mature neighborhood, e.g. close proximity to primary and secondary schools, university, AEON, Klang Parade, etc. (viii) very near to New Klang Valley Expressway (NKVE), federal and Selat Klang highways, and (ix) a freehold land.
Earnings from leisure division increasing fast too. I-City’s theme parks have four precincts, namely: (i) City of Digital Lights with millions of LED lights (ii) SnoWalk with ice sculptures in a -5 Celsius environment (iii) WaterWorld (opened in Nov 2012) with ASEAN’s first Tornado ride and cool splashing games (iv) FunWorld which features Trick Art Museum (opened in Nov 2012), i-Kidz children playing zone (opened in July 2012), etc. As many main attractions in the theme parks only opened in the 2HFY12 and RM10m-15m capex to be spent in FY13, earnings from this division are likely to grow further this year. In FY13, I-Bhd plans to add two new attractions in WaterWorld, refresh the ice theme for SnoWalk, install new LED lights and create two new major attractions (> 10,000 sq ft floor space) for FunWorld. Supported by Tourism Malaysia, i-City, which has attracted millions of local tourists by hosting various major events including MTV World Stage Live and Miss Tourism International, may also see strong improvement in foreign tourist arrivals next year in conjunction with “Visit Malaysia Year 2014”.
Attractive dividend expected. I-Bhd has been paying dividends for the last few years. As the company still has not paid any dividends for FY12, we expect it to declare 4 sen single-tier dividend in the 4QFY12 results, reflecting our expectation of the company posting the second-highest full-year earnings since current management took over the company in 1999. Considering its RM14.8m net cash and zero borrowings position as of 30 Sept 2012, we expect the company to achieve at least 30% net dividend payout ratio in FY13. That means whoever invests in I-Bhd now is expected to enjoy 12 sen single-tier dividends for the next 18 months, translating into an 8.5% net dividend yield at the current price.
Fast-growing earnings contribution from property development. Besides greater sales recognition expected from i-Residence and i-SOVO in FY13, i-Bhd plans to launch RM300m GDV SOHO phase 1 in the 1QFY13 after Chinese New Year. I-Bhd will also be launching its maiden RM500m GDV freehold luxury condominium, Grand i-Residence, in Jalan Changkat Kia Peng, Kuala Lumpur, sometime in the 3Q/4Q this year, should it obtain the final approval from the authority as scheduled.
Competitive advantages of i-City. These includes (i) an increase in its plot ratio up from 1:3 to 1:5 lifted the gross development value (GDV) from RM3bn to RM5bn (ii) a 24-hour operation for approved outlets and activities to support night tourism (iii) a 21-year temporary occupation license for about 30 acres of neighboring land which can be used to create gardens and car parks (iv) a MSC Malaysia Cybercentre status development (v) i-City Interchange which is expected to be completed by year-end (vi) a potential JV to build a RM500m shopping mall (vii) located in a mature neighborhood, e.g. close proximity to primary and secondary schools, university, AEON, Klang Parade, etc. (viii) very near to New Klang Valley Expressway (NKVE), federal and Selat Klang highways, and (ix) a freehold land.
Earnings from leisure division increasing fast too. I-City’s theme parks have four precincts, namely: (i) City of Digital Lights with millions of LED lights (ii) SnoWalk with ice sculptures in a -5 Celsius environment (iii) WaterWorld (opened in Nov 2012) with ASEAN’s first Tornado ride and cool splashing games (iv) FunWorld which features Trick Art Museum (opened in Nov 2012), i-Kidz children playing zone (opened in July 2012), etc. As many main attractions in the theme parks only opened in the 2HFY12 and RM10m-15m capex to be spent in FY13, earnings from this division are likely to grow further this year. In FY13, I-Bhd plans to add two new attractions in WaterWorld, refresh the ice theme for SnoWalk, install new LED lights and create two new major attractions (> 10,000 sq ft floor space) for FunWorld. Supported by Tourism Malaysia, i-City, which has attracted millions of local tourists by hosting various major events including MTV World Stage Live and Miss Tourism International, may also see strong improvement in foreign tourist arrivals next year in conjunction with “Visit Malaysia Year 2014”.
Attractive dividend expected. I-Bhd has been paying dividends for the last few years. As the company still has not paid any dividends for FY12, we expect it to declare 4 sen single-tier dividend in the 4QFY12 results, reflecting our expectation of the company posting the second-highest full-year earnings since current management took over the company in 1999. Considering its RM14.8m net cash and zero borrowings position as of 30 Sept 2012, we expect the company to achieve at least 30% net dividend payout ratio in FY13. That means whoever invests in I-Bhd now is expected to enjoy 12 sen single-tier dividends for the next 18 months, translating into an 8.5% net dividend yield at the current price.
Appendix II : Management & shareholdings
Tan Sri Datuk Lim Kim Hong. Tan Sri Datuk Lim, the founder of I-Bhd, is currently the executive chairman of i-City. He directly and indirectly owns about 75% stake in I-Bhd through Sumurwang SB and Sumur Ventures SB. Sumur Ventures owns more than 90% stake in Sumurwang and Tan Sri Datuk Lim has more than 90% shareholding in Sumur Ventures. It is important to take note that Sumurwang is the land owner which owns all the land plots in i-City while I-Bhd is the developer and project owner of i-City. Although there could be risks in relation to unfavorable related party transactions, we deem the risk low as Tan Sri Datuk Lim also owns about 75% stake in I-Bhd. It would be in his best interest to optimize profits from both companies in order to gain from disposal and development of the land. In addition, independent directors of I-Bhd play an important role in protecting the interests of other shareholders. The shareholders of I-Bhd may actually benefit from
this arrangement if I-Bhd achieves at least a 20% PBT margin at its property development division going forward, which is well above the levels achieved by some established public listed property developers. Besides, if the i-City land were to have been purchased under I-Bhd, the company could have incurred a high opportunity cost by holding on to the piece of land for at least 10 years. This is because Tan Sri Datuk Lim bought the land in 1994, when demand for properties in Klang Valley back then was still very much concentrated in between Subang Jaya and Kuala Lumpur, and the land did not break ground until seven years ago.
Puan Sri Tey Siew Thuan. Puan Sri Tey, spouse of Tan Sri Datuk Lim, was appointed to the board in 1999 and is currently the executive director of I-Bhd. She is responsible for the property development and financial aspects of the company.
Dato’ Eu Hong Chew. Dato’ Eu was also appointed to the board in 1999 and is currently the CEO of I-Bhd. He has a first class honors degree in mechanical engineering from the University of Glasgow, United Kingdom. He also holds an MBA from the University of Bradford, United Kingdom.
Tan Sri Datuk Lim Kim Hong. Tan Sri Datuk Lim, the founder of I-Bhd, is currently the executive chairman of i-City. He directly and indirectly owns about 75% stake in I-Bhd through Sumurwang SB and Sumur Ventures SB. Sumur Ventures owns more than 90% stake in Sumurwang and Tan Sri Datuk Lim has more than 90% shareholding in Sumur Ventures. It is important to take note that Sumurwang is the land owner which owns all the land plots in i-City while I-Bhd is the developer and project owner of i-City. Although there could be risks in relation to unfavorable related party transactions, we deem the risk low as Tan Sri Datuk Lim also owns about 75% stake in I-Bhd. It would be in his best interest to optimize profits from both companies in order to gain from disposal and development of the land. In addition, independent directors of I-Bhd play an important role in protecting the interests of other shareholders. The shareholders of I-Bhd may actually benefit from
this arrangement if I-Bhd achieves at least a 20% PBT margin at its property development division going forward, which is well above the levels achieved by some established public listed property developers. Besides, if the i-City land were to have been purchased under I-Bhd, the company could have incurred a high opportunity cost by holding on to the piece of land for at least 10 years. This is because Tan Sri Datuk Lim bought the land in 1994, when demand for properties in Klang Valley back then was still very much concentrated in between Subang Jaya and Kuala Lumpur, and the land did not break ground until seven years ago.
Puan Sri Tey Siew Thuan. Puan Sri Tey, spouse of Tan Sri Datuk Lim, was appointed to the board in 1999 and is currently the executive director of I-Bhd. She is responsible for the property development and financial aspects of the company.
Dato’ Eu Hong Chew. Dato’ Eu was also appointed to the board in 1999 and is currently the CEO of I-Bhd. He has a first class honors degree in mechanical engineering from the University of Glasgow, United Kingdom. He also holds an MBA from the University of Bradford, United Kingdom.
Source: OSK
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