Stock Name: IJMLAND
Company Name: IJM LAND BERHAD
Research House: AMMB
Property sector
Maintain overweight: We reaffirm our 'overweight' stance on the property sector, with S P Setia and IJM Land as our deep conviction 'buys'. We are raising our net asset value (NAV) estimates to reflect an expected reacceleration of residential pricing growth of 10% this year against our previous forecast of +5%, given the rebound in transaction volume and higher replacement costs. We expect NAV upgrades to lead the next wave of rerating for property equities.
We have lifted our fair value for S P Setia from RM7.38 to RM8.10 ' at parity with our revised fully-diluted (FD) NAV of RM8.10 per share. For IJM Land, we raise our fair value from RM3.88 to RM4 ' based on an unchanged 10% discount to our FD NAV of RM4.45. On a relative basis, we continue to expect news flow momentum centring on presales and acquisitions to be more significant for S P Setia than IJM Land.
Replacement costs are on the rise due to escalating land cost as well as rising prices of building materials from timber, aluminium and cement to steel. The recent aggressive bids for land surrounding mature neighbourhoods would solidify the strong pricing trends as land traditionally accounts for between 25% and 30% of residential prices.
In addition, cement makers including Lafarge have just lifted average selling prices by some 6% in March 2011. Steel companies including Ann Joo and Lion Group are also guiding for higher selling prices this year.
The expected reacceleration in residential prices would also be preceded by a sustained expansion in transaction volume, which is already underway now. Our discussions with developers revealed that demand has rebounded strongly in the past month, as evident in the strong response to recent launches.
Buyers appear to have adjusted to the 70% loan-to-value restriction on third property, paving the way for a meaningful inventory liquidation cycle to kick in.
Against this backdrop, we expect developers to aggressively step up presales ' the primary valuation driver of property equities. There are several presales in the coming months in select prime neighbourhoods that may establish new pricing benchmarks, with an associated uplift to the broader residential pricing trends. Desa ParkCity is set to launch 127 units of 'terrace' houses, The Mansions, priced from an unprecedented RM650psf (+8%) on built-up area. At KL Eco City, S P Setia will be launching some 750 condominium units priced from RM900psf.
Registration of interest has been very strong for both projects despite the premium pricing. This implies that the imminent successful launches of The Mansions and KL Eco City would establish new market clearing prices, leading to a repricing of future presales as well as secondary units in the suburbs. This was the case when the Casaman was launched in Desa ParkCity at the then unprecedented price of RM600psf in 2010.
There may also be potential liberalisation of residential plot ratios, particularly in established urban areas where there is an acute shortage of land available for development, coupled with strong effective demand.
As it is, we are already seeing generous plot ratios at select sites to defray the high land cost. Such a move, if it materialises, would accentuate NAV expansion from higher gross development value. We have yet to factor this into our NAV models.
Tactically, we also expect news flow centring on the redevelopment of some 3,300 acres of prime land in Sungai Buloh to sustain buying interest in property equities. The said land has high immediate development potential. The accretion to NAVs should be significant for developers. Kwasa Land, the property arm of the Employees Provident Fund, is the master developer which will establish joint ventures with select developers for several parcels.
On township track record, S P Setia would be the leading candidate with its Eco Park brand. It also boasts a comprehensive management team. Sam Ling's Desa ParkCity and Gamuda Land are other good partners, given their strong niche in developing premium residential projects that serve as industry benchmarks.
IJM Land and Sime Darby Property may also play a role, while malaysian Resources Corp Bhd may be eyeing the commercial precinct. We believe that the tender for the JV parcels may take place after the award of the MRT construction packages this year. ' AmResearch, April 18
This article appeared in The Edge Financial Daily, April 19, 2011.
Company Name: IJM LAND BERHAD
Research House: AMMB
Property sector
Maintain overweight: We reaffirm our 'overweight' stance on the property sector, with S P Setia and IJM Land as our deep conviction 'buys'. We are raising our net asset value (NAV) estimates to reflect an expected reacceleration of residential pricing growth of 10% this year against our previous forecast of +5%, given the rebound in transaction volume and higher replacement costs. We expect NAV upgrades to lead the next wave of rerating for property equities.
We have lifted our fair value for S P Setia from RM7.38 to RM8.10 ' at parity with our revised fully-diluted (FD) NAV of RM8.10 per share. For IJM Land, we raise our fair value from RM3.88 to RM4 ' based on an unchanged 10% discount to our FD NAV of RM4.45. On a relative basis, we continue to expect news flow momentum centring on presales and acquisitions to be more significant for S P Setia than IJM Land.
Replacement costs are on the rise due to escalating land cost as well as rising prices of building materials from timber, aluminium and cement to steel. The recent aggressive bids for land surrounding mature neighbourhoods would solidify the strong pricing trends as land traditionally accounts for between 25% and 30% of residential prices.
In addition, cement makers including Lafarge have just lifted average selling prices by some 6% in March 2011. Steel companies including Ann Joo and Lion Group are also guiding for higher selling prices this year.
The expected reacceleration in residential prices would also be preceded by a sustained expansion in transaction volume, which is already underway now. Our discussions with developers revealed that demand has rebounded strongly in the past month, as evident in the strong response to recent launches.
Buyers appear to have adjusted to the 70% loan-to-value restriction on third property, paving the way for a meaningful inventory liquidation cycle to kick in.
Against this backdrop, we expect developers to aggressively step up presales ' the primary valuation driver of property equities. There are several presales in the coming months in select prime neighbourhoods that may establish new pricing benchmarks, with an associated uplift to the broader residential pricing trends. Desa ParkCity is set to launch 127 units of 'terrace' houses, The Mansions, priced from an unprecedented RM650psf (+8%) on built-up area. At KL Eco City, S P Setia will be launching some 750 condominium units priced from RM900psf.
Registration of interest has been very strong for both projects despite the premium pricing. This implies that the imminent successful launches of The Mansions and KL Eco City would establish new market clearing prices, leading to a repricing of future presales as well as secondary units in the suburbs. This was the case when the Casaman was launched in Desa ParkCity at the then unprecedented price of RM600psf in 2010.
There may also be potential liberalisation of residential plot ratios, particularly in established urban areas where there is an acute shortage of land available for development, coupled with strong effective demand.
As it is, we are already seeing generous plot ratios at select sites to defray the high land cost. Such a move, if it materialises, would accentuate NAV expansion from higher gross development value. We have yet to factor this into our NAV models.
Tactically, we also expect news flow centring on the redevelopment of some 3,300 acres of prime land in Sungai Buloh to sustain buying interest in property equities. The said land has high immediate development potential. The accretion to NAVs should be significant for developers. Kwasa Land, the property arm of the Employees Provident Fund, is the master developer which will establish joint ventures with select developers for several parcels.
On township track record, S P Setia would be the leading candidate with its Eco Park brand. It also boasts a comprehensive management team. Sam Ling's Desa ParkCity and Gamuda Land are other good partners, given their strong niche in developing premium residential projects that serve as industry benchmarks.
IJM Land and Sime Darby Property may also play a role, while malaysian Resources Corp Bhd may be eyeing the commercial precinct. We believe that the tender for the JV parcels may take place after the award of the MRT construction packages this year. ' AmResearch, April 18
This article appeared in The Edge Financial Daily, April 19, 2011.
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