iBhd - Time to square off position

INVESTMENT MERIT

- It is taking too long. We previously recommended a Trading Buy (refer to our On Our Radar report dated 27/11/12) on iBhd as we expected the catalyst from its proposed special share dividend to  improve the stock’s trading activities and also given the potential upside from its expected stronger 4Q12 results on the back of likely better property billings and a significantly stronger leisure revenue. However, prior to the share dividend distribution or even after it (entitlement was on 28 Dec 2012), the share price remained rangebound and as illiquid as before. The market is not even excited when Business Times (21/1/13) reported that the interchange linking the Federal Highway and Section 7, Shah Alam’s target completion is in Sep-13. 

- GE is near and our property analyst is turning cautious in the short term (3-6 months) given negative market sentiments. This should cap further upsides. In fact, our property analyst  prefers selective defensive developers who have strong yields (>5%). So good news and share price catalysts will be muted with increasing uncertainties. 

- Lowering our TP to RM1.40  (RM1.97 previously). We have cut our TP on iBhd after widening the discount rate to 73% (previously 65%) on our SOP RNAV estimate of RM5.25 (adjusted total shares outstanding) based on a conservative average ASP of RM550psf, which translates to a GDV of RM4.0b. We decided to raise the discount rate to 73% (15%-75% discount for developers under our coverage) to account for stock’s small market capitalisation, no improvements in illiquidity and weak share price movements, which will only be further exarcerbated by upcoming GE risks. If the company reports better results later, we may revisit our valuations on the stock. Hence, we recommend “Trading Sell” on iBhd as it has not performed in our expected time frame. 

SWOT ANALYSIS

- Strength: Large freehold land banks in Shah Alam, i-City is the only MSC zone in Shah Alam.

- Weaknesses: Small market capitalisation, illiquid trading activities.

- Opportunities:  The development of i-City interchange will reduce traffic congestion and boost socioeconomic development in Shah Alam. 

- Threats: Regulation and political risks.

TECHNICALS

- Resistance: RM1.43 (R1), RM1.67 (R2)

- Support: RM1.31 (S1), RM1.20 (S2)

- Comments:  iBhd looks to be stuck within the RM1.31-RM1.43 congestion zone despite the positive news on the interchange. In the meantime, the key indicators also look to be weakening. Unless the share price manages a resistance breakout in the near term, the technical picture could deteriorate further.

BUSINESS OVERVIEW

- I-Berhad is an investment holding company that focuses on property development and is the master developer of i-City @ Shah Alam. The company develops, manages and invests in iCity, which spans 72ac in Shah Alam alongside the Federal highway. It enjoys MSC status and has one of the few large freehold land banks in Shah Alam. i-Bhd has signed  an agreement with the State Government of Selangor for the development of i-City as a Technopreneur Campus for 21 years. Incentives granted to the company include 1) Temporary Occupation License for c.30ac of neighbouring land; 2) approved 24 hours operation for approved outlets; 3) a lower Bumi sales quota of 30% and 4) an increased plot ratio of 5.0x from 3.0x, which nearly doubled its allowable GFA to 13.0m sf. The project enjoys strong accessibility and will soon see a flyover interchange with direct and exclusive access to Federal Highway as well as an LRT extension to service i-City. 

BUSINESS SEGMENTS

- Property Development, Property Investment, Leisure (comprising of entertainment components like the City of Digital Lights, Outdoor Fun Park, SnoWalk, Water World and i-Walk)  and ICT Services.  

Source : Kenanga