We visited Johor recently and caught up with the following companies; UEMLAND, SPSETIA, WCT, IJMLAND and Crescendo. It is tough to see any noticeable change since our last visit in Nov-12, although it appears that everyone on the ground is becoming increasingly upbeat. Both locals and Singaporeans appear to be numb to potential GE risks since recent launches (e.g. Teega, Medini Signature, on-going launches from Johor townships) have achieved 80%-90% take-ups within weeks (if not days!) of launch. It also appears that the buying activities from locals and Singaporeans have not halted even with GE being around the corner, which reiterates our bullish stance on Iskandar. Recent positive news flow from further G2G tie-ups on property (Danga Bay, Medini) and infrastructure (Johor-Singapore MRT, KL-Singapore high-speed rail) projects lends strength to Iskandar’s macro story. Direct beneficiaries like UEMLAND have also been busy with believable demand drivers (Educity, Ascendas, Motorcity, China Mall). Iskandar Waterfront Holding (IWH) likely listing in mid-CY13 will likely be done at premium levels to UEMLAND which will allow other Johor based developers to play valuations catch-up.
We are in the midst of reviewing our sector/stock calls for developers. Our current calls are as follow; UOA Development (1Q13 Top Pick; OP; TP: RM2.30), IJMLAND (OP; TP: RM2.60), UEMLAND (MP; TP: RM2.40), SPSETIA (MP; TP: RM3.30), MAHSING (MP; ex-rights TP: RM2.08 or ex-bonus TP of RM1.81) and Hunza (UP; TP: RM1.50). However, we have an upside bias on developers with significant Johor exposure or those with fast-turnaround projects in Johor. UEMLAND is an obvious bet as it will be one of the best news-flow proxy to Iskandar next to IWH. We have also recently initiated Hua Yang (OP; TP: RM2.10), whereby we are looking at the stock from a more ‘affordable housing’ angle while it has decent exposure to Johor (c. 20%). Sunway (NOT RATED) is looking attractive given that it is the third most exposed listed developer to Johor after IWH and UEMLAND. E&O (NOT RATED) will also benefit given their JV tie-up to develop the Resort Wellness project @ Medini with Khzanah and Temasek. Crescendo Corp (NOT RATED) and KSL (NOT RATED) will likely enjoy the ride given their high Johor exposures and low land cost although liquidity of these companies are tight; but note that we take the stance that privatization plays on Crescendo and KSL are also unlikely in the near term.