KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Property Bracing for a cyclical slowdown Property market likely heading for a cyclical slowdown in 2014 We believe the Malaysian property market is heading for a cyclical slowdown NEUTRAL (maintain) after a strong 4-year property bull cycle. While the long-term fundamentals have remained positive (demographics, economic growth), some short-term factors that are cyclical in nature have started to deteriorate. Broadly we expect developers to achieve lower take-up rates and weaker profit margins in view of Absolute Performance (%) higher competition, cautious bank lending, implementation of tough government property cooling measures and lower affordability. 1M 3M 12M IJM Land +17.9 +12.1 +27.4 Developers fine-tune product line-up to cushion slowdown IOIPG -0.4 na -na To cushion the slowdown, developers have fine-tuned their product line-up and SP Setia 0.0 -5.4 -8.2 Sunway +5.5 +11.2 +21.8 marketing strategy. This includes launching new projects across different Trop +13.4 +12.5 +0.3 property hot spots to diversify geographical risk and tap into a larger pool of UOA +7.1 +5.5 +13.2 buyers. The developers are also switching their product mix to launch more landed properties where demand is more resilient, and stepping up their marketing campaigns to attract foreign buyers from Singapore, Indonesia, China, Hong Kong and Japan. Relative Performance Government-led property projects offer opportunities, but also threats GLCs/GLICs and state agencies are becoming increasingly active in property development. While some of the upcoming government-led property projects offer good opportunities to the eventual project winners, it poses substantial competition (threat) to others, especially when several government projects (TRX, Medini) are packaged with special incentives and/or excellent government- funded infrastructures.
Backed by high unbilled sales, earnings should remain resilient Notwithstanding our cautious view on the domestic property market, we expect
developers’ 2014-15 earnings to remain resilient, underpinned by high unbilled sales. Overall, we forecast the six developers under our coverage to achieve 15% earnings growth in 2014, tapering off to 5% in 2015, driven by higher
overseas earnings from the sector heavyweights IOIPG and SP Setia as well as gain on land disposal by Tropicana.
Maintain NEUTRAL Maintain NEUTRAL. While we are cautious on the 2014 property market outlook, we believe that downside risk to share prices is limited, in view of the following:
(i) developers’ share prices have retraced by 9-28% from their 2013 peak and now trade at a fair 0.4-0.6x P/RNAV, broadly within the historical trading range; (ii) developers’ balance sheets are generally strong and their 2014-15 earnings are still resilient; and (iii) the long-term fundamentals (demographics, economic
environment) have remained supportive.
Top pick is IJM Land Our top pick for the sector is IJM Land (BUY, TP RM3.30). We continue to like IJM Land for its strong management, good branding, geographically diversified land bank and strong focus on townships/ mass housing developments. We also
like Tropicana (BUY, TP RM1.80) for its strategic land bank, undemanding valuation of 0.4x P/RNAV and ongoing asset monetisation and de-gearing Isaac Chow exercise. (603) 2145 0412 [email protected] Peers Comparison Stock Rating Sh Pr TP Mkt Cap YearCore PE (x) EPS growth (%) P/RNAV P/B ROE (%) Div Yield (%) (RM) (RM) (RMm) End CY14 CY15 CY14 CY15 (x) (x) CY14 CY15 FY14 FY15 IOIPG REDUCE 2.59 2.50 8,389 June 12.7 10.3 19.6 24.0 0.6 0.8 5.9 6.8 1.4 1.5 SP Setia REDUCE 2.95 2.80 7,253 Oct 16.2 14.9 -9.6 8.7 0.6 1.3 7.8 8.4 3.6 4.4 Sunway ADD 2.89 3.15 4,981 Dec 10.6 10.3 -14.8 2.9 0.6 0.9 8.6 8.3 3.5 3.5 IJMLand BUY 2.97 3.30 4,630 Mar 12.4 11.8 16.5 5.4 0.8 1.5 11.5 11.2 2.0 2.4 UOA Dev ADD 2.11 2.22 2,827 Dec 8.7 8.5 -5.8 2.1 0.7 1.2 12.9 12.5 6.6 7.1 Tropicana BUY 1.44 1.80 1,999 Dec 5.9 10.5 42.3 -44.1 0.4 0.6 12.6 6.9 4.9 4.5 Source: Affin Note: Pricing as of close on 21 March 2014
Important disclosures at the end of report Page 1
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Long-term fundamentals remain positive…
The last property bull cycle was driven by supportive fundamentals Malaysia experienced a strong 4-year property bull cycle that led to substantial increases in both property prices (+43%) and transaction volume. The number of residential property transactions (for units priced above RM250,000) doubled from 40,726 units in 2009 to 82,600 units in 2013 (annualised). Similarly, the value of residential property transactions (for units priced above RM250,000) increased by 116% to RM50.2bn (annualised) in 2013, from RM23.3bn in 2009. The 2010-2013 property bull cycle was, in our view, driven by supportive fundamentals including:
(i) Favourable demographics. Malaysia has a young and growing population where 71% of its population is below 40 years old. Importantly, approximately 25% of its population (7.3m people) is between 25-40 years old when the desire to purchase property is, in our view, the strongest. With the backing of parents and access to long-tenure mortgages, this group of buyers was one of the key demand drivers over the 2010-2013 period;
Fig 1: Malaysia - numbers of newborn per annum Fig 2: Malaysia - population by age group 85 + ('000) 80 - 84 600.0 75 - 79 70 - 74 500.0 65 - 69 60 - 64 55 - 59 400.0 50 - 54 45 - 49 300.0 40 - 44
(age) 35 - 39 30 - 34 200.0 25 - 29 20 - 24 15 - 19 100.0 10 - 14 5 - 9 0.0 0 - 4 - 500 1,000 1,500 2,000 2,500 3,000
1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 ('000 people)
Source: Department of Statistics Source: Department of Statistics
(ii) Robust domestic economy. In 2010-13, Malaysia achieved robust annual economic growth of between 4.7-7.4% and maintained a low unemployment rate of 3.0-3.3%;
(iii) Lower financing cost. Banks’ average lending rate has declined from 6% in 2008 to 4.5% currently. The lower mortgage cost, coupled with longer mortgage tenures, has lowered the monthly instalment amount, suppressed yields and encouraged property purchases;
Fig 3: Malaysia’s real GDP growth and unemployment rate Fig 4: Malaysia banks’ average lending rate (%) (%) GDP Unemployment rate 10.0 10.0 8.0 9.0 8.0 6.0 7.0 4.0 6.0 5.0 2.0 4.0 0.0 3.0 -2.0 2.0 -4.0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: BNM , CEIC Source: BNM, CEIC
Important disclosures at the end of report Page 2
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
(iv) Easy financing packages. The proliferation of low downpayments, cash rebates, Developer Interest Bearing Scheme (“DIBS”) and waiver of legal fees, have reduced upfront costs and spurred property investment/ speculation;
(v) ETP, infrastructure projects. The government’s Economic Transformation Program (“ETP”) and new infrastructure projects such as highways in Iskandar Malaysia, Klang Valley MRT and LRT extension projects have spurred demand for properties. In addition, warmer Malaysia-Singapore relations have boosted the appeal of Iskandar Malaysia;
(vi) Strong pent-up demand due to weak new housing starts during 2008-2010. Low incoming supply and completion during 2010-2011 helped fuel the property bull cycle; and
(vii) Malaysia property prices are attractive vis-à-vis properties in Singapore, Hong Kong and China.
Fig 5: The amount (sq m) of luxury property US$1m will buy (Sq m) 180.0 170.0
160.0
140.0
120.0 95.7 100.0 75.5 80.0 52.6 60.0 46.2 40.0 32.6 20.6 20.0
- Hong Kong Singapore Shanghai Beijing Tokyo** Mumbai Kuala Lumpur
** Based on prime price as at Sept 2013 Source: The Edge Weekly (all data comes from Knight Frank Network)
Important disclosures at the end of report Page 3
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
However, the market is heading for a cyclical slowdown
Property market heading for a cyclical slowdown in 2014 Moving into 2014, we believe that the Malaysia property market is heading for a cyclical slowdown. While some of the above-mentioned long-term fundamentals have remained positive (demographics, economic growth), others have started to deteriorate. In our view, developers will see lower take-up rates for their 2014 launches given the following:
(i) Incoming supply at record high. Malaysia housing starts (excluding low-cost housing) hit a trough in 2009-2010 with quarterly supply of around16,000-20,000 units. The housing starts have since picked up strongly, averaging 34,000 units per quarter in 2013. As at end-Dec 2013, the incoming supply was at an all-time high of 571,000 units. The planned supply has remained relatively stable within the 440,000- 480,000 range since 2007;
Fig 6: Incoming supply of residential properties (excl. low-cost) Fig 7: Planned supply of residential properties (excl. low-cost)
('000 units)Incoming Supply ('000 units) ('000 units)Planned Supply ('000 units)
600 Housing Starts (RHS) 40 600.0 New Planned Supply (RHS) 45.0 40.0 500 35 500.0 30 35.0 400 25 400.0 30.0 25.0 300 20 300.0 20.0 200 15 200.0 15.0 10 10.0 100 100.0 5 5.0 0 0 0.0 0.0 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13
Source: JPPH, CEIC Source: JPPH, CEIC
(ii) Entry of Singapore and China developers. The relatively attractive Malaysian land prices, higher Chinese/Singaporean interest in Malaysia and tough property tightening measures imposed in their home countries have driven the Singapore and China developers into the Malaysian property market. The influx of Singapore and China developers (ie. Guangzhou R&F, Hao Yuan Investment, Country Garden) has pushed up land prices, thereby lowering developers’ future profit margins. Importantly, the aggressive property launch strategies undertaken by some China developers (ie. Country Garden launched over 9,000 condominium units in Danga Bay within 1 year from its land acquisition) has created significant competition and an oversupply in their vicinity;
(iii) Tough property market cooling measures. The Malaysian government has announced a series of property market cooling measures during Budget 2014 (announced in October 2013). These new measures include the revision of real property gain tax (please refer to Fig 8), higher minimum price of RM1,000,000 for property purchase by foreigners (from RM500,000) and banning of DIBS. The Central Bank of Malaysia (“BNM”) has subsequently issued a circular to banks, instructing the banks to determine the loan-to-value ratio (“LTV”) for housing loan applications based on net property price (adjusted for rebates, discount, gifts) rather than gross.
Important disclosures at the end of report Page 4
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
In addition, several state governments such as Penang have introduced a 3% levy on foreign property buyers while the Johor state government is mulling over a 2% levy on foreign property buyers. These measures are negative for the property sector, especially the developers targeting foreign purchasers. To date, most developers and prospective buyers are still adopting a wait-and-see approach to assess the full impact from these measures;
Fig 8: Revision to real property gain tax (RPGT) during Budget 2014 Dis pos e d w ithin Re vis e d Previous (years) 1 30% 30% 30% 15% 2 30% 30% 30% 15% 3 30% 30% 30% 10% 4 20% 20% 30% 10% 5 15% 15% 30% 10% >6 0% 5% 5% 0% Applicable to Individual Company Foreigners All Source: Affin
(iv) Lower affordability. We believe that overall property prices (+43% since end-2009) have outpaced inflation and the increment in wages. The higher property prices, possible interest rate hike (Affin expects a 25-50 bps rate hike within the next 18 months) and rising cost of living (a result of the reduction in government subsidies on sugar, electricity and petrol) translate to lower affordability, thereby slowing property purchases. We expect the implementation of a 6% GST by April 2015 to further increase the cost of living and reduce affordability.
Fig 9: Malaysia House Price Index vs CPI
(index) House Price Index CPI 220.0 200.0 180.0 160.0 140.0 120.0 100.0 80.0 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13
Source: JPPH, BNM, CEIC, Affin
Property prices may hold up but new property sales likely to decline Overall, we believe that the property market is headed for a cyclical slowdown. While property prices may hold up (or even increase slightly) due to higher costs, the number of new property sales and take-up rate are likely to be weaker due to higher competition, the introduction of tough property cooling measures and lower affordability. The property developers will, in turn, experience margin compression.
Important disclosures at the end of report Page 5
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Government-led property projects offer opportunities, but also threats
Increasing GLCs/GLICs participation in mega property projects The Government-Linked Companies (“GLCs”) and Government-Linked Investment Companies (“GLICs”) are becoming increasingly active in property development. Similarly, the state-owned entities such as Kumpulan Prasarana Rakyat Johor (KPRJ), Penang Development Corporation (PDC) and Selangor State Development Corporation (PKNS) are also actively involved in major property developments in their respective jurisdictions. We have summarised some notable mega property projects in Fig 10.
Fig 10: Summary of notable government-led property projects Projects GLC / GLIC / GDV Land Development plan Special incentives / attractions State (RMbn) Size Agencies (acres)
Tun Razak 1MDB 26 70 International financial hub. - Income tax exemption of 100% for 10 years Exchange Signature office tower, - Stamp Duty exemption on loan and service agreements (TRX) residential towers, five-star - Industrial Building Allowance and Accelerated Capital Allowance hotels and a retail mall - Income tax exemption of 70% for 5 years for eligible property developers in TRX
Kwasa Kwasa land 50 2,330 Integrated township - Good infrastructure connection (2 MRT stations, 3 highways) Damansara (EPF) development Warisan Permodalan 5 19 Mixed-used office - NA Merdeka Nasional retail and residential project Berhad 100-storey tower Medini Iskandar 20 2,300 Integrated township - Income tax exemption for land sale, rental or sale of buildings Investment development - Income tax exemption for management, supervisory or marketing Berhad services until 2020 - Income tax exemption (10 years) for qualifying activities - Flexibility from foreign exchange adminstrative rules - Flexibility to employ foreign knowledge workers - Other forms of tax exemption given : witholding tax, RPGT and import duty and sales tax - Businesses are entitled to 10 years' exemption from corporate tax - Non-Malaysians are entitled to purchase property valued under RM500k - Non-Malaysians are entitled to 100% foreign ownershp
Source: 1MDB, The Star, NST, Medini Iskandar, The Edge
Government-led property projects offer opportunities, but also threats These government-led property projects come in various forms. Some projects will be fully managed by their respective beneficial holders while other will seek joint-venture partners via direct negotiation or tenders. While these projects offer good opportunities to the eventual project winners, it poses substantial competition (threat) to others, especially when several government-led projects are packaged with special incentives and/or government-fund and excellent infrastructure.
For example, 1MDB’s RM26bn Tun Razak Exchange (“TRX”) project offers attractive government incentives which include income tax exemption for building development, exemption from stamp duty and tax deductions against rental costs, building purchase, and relocation costs. Separately, developers in Medini enjoy incentives such as 10-year corporate tax exemptions, no restrictions on foreign purchasers and full flexibility for corporates to source capital globally. These incentives will give TRX and Medini a strong advantage over its neighbouring development projects.
On the residential front, the EPF-led 2,300-acre Kwasa Damansara development is blessed with good infrastructure (2 MRT stations and 3 connecting highways). In view of the strategic location and high project profile, we believe that some prospective property buyers may hold back their purchases to evaluate the upcoming offerings from Kwasa Damansara.
Important disclosures at the end of report Page 6
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Earnings Outlook
Developers fine-tune product line-up to cushion slowdown To cushion the slowdown, the developers have fine-tuned their product line-up by launching projects across multiple regions to diversify geographical risk and tap into a larger pool of potential buyers. For example, Sunway has lined up project launches in Klang Valley (26% of total 2014 GDV), Johor (24%), Penang (8%) and Ipoh (2%) in Malaysia, as well as Singapore (27%) and China (13%). While UOA remains focused in Klang Valley, the group is increasing its geographical reach by launching projects in new locations such as Sentul, Jalan Ipoh and Kepong.
Also, the developers are increasing the offerings of landed properties where demand is greater. Tropicana, for example, has recently launched landed properties in Kajang. The group is fast tracking its Canal City project (township project) with target launches in 2H2014.
Last but not least, the developers are stepping up their marketing campaigns to attract foreign buyers from Singapore, Indonesia, China as well as Hong Kong and Japan.
Backed by high unbilled sales, earnings are still resilient Notwithstanding our cautious view on the domestic property market, we expect developers’ 2014-15 earnings to remain resilient, underpinned by high unbilled sales and a likely improvement in property market sentiment in 2H2015. Overall, we forecast the six developers under our coverage to achieve 15% earnings growth in 2014, tapering off to 5% in 2015, driven by higher earnings from the sector heavyweights IOIPG and SP Setia, and gain on land disposal by Tropicana.
We forecast IOIPG to achieve a 20%+ earnings CAGR over 2012-15E attributable to higher earnings from its upcoming investment properties (IOI City Mall, South Beach project in Singapore) as well as the launch of its completed luxury condominium projects Seascape @ Sentosa. For SP Setia, we forecast 16-20% earnings growth per annum driven by higher unbilled sales and the completion of its Fulton Lane Tower 1 in Australia in 2015 (for the Australia and London projects, SP Setia will only book the earnings upon delivery of the completed units).
Excluding IOIPG, SP Setia and Tropicana (earnings skewed by uneven gains on land disposal), we expect the other developers (IJM Land, Sunway, UOA) to report muted combined earnings growth of 1-3% over 2014-15.
Fig 11: Core net profit of developers under our coverage (RMm) 3,000
2,500 IOIPG
2,000 SP Setia
Tropicana 1,500
IJMLand 1,000 Sunway
500 UOA
0 2011 2012 2013 2014E 2015E
Source: Company, Affin
Important disclosures at the end of report Page 7
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Valuation and Recommendation
Cautious 2014 market outlook but likely limited downside to share prices Notwithstanding our cautious view on the 2014 property market outlook (we are expecting a cyclical slowdown), we believe that downside risk to share prices is limited, in view of the following:
(i) Developers’ share prices have retraced by 9-28% from their 2013 peak and now trade at a fair 0.4-0.6x P/RNAV, broadly within their historical trading band;
(ii) Developers’ balance sheets are generally strong and their 2014-15 earnings are likely to remain resilient, backed by strong unbilled sales; and
(iii) The long-term market fundamentals (demographics, economic condition) have remained supportive. As such, we do not expect a prolonged cyclical downturn. We think that the current soft property market conditions may improve in 2H2015.
Fig 12: Price performance of developers under our coverage Fig 13: Historical P/RNAV band (5 years) SP Setia IOI Prop Tropicana SP Setia IJM Land UOA 120% IJM Land Sunway UOA 1.40 Sunway Tropicana 100% 1.20 80% 1.00 60% 0.80 40% 0.60 20% 0% 0.40 -20% 0.20 -40% - Jul-10 Jul-11 Jul-12 Jul-13 Jul-13 Oct-13 Apr-13 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-13 Jun-13 Jan-14 Feb-13 Mar-13 Feb-14 Mar-14 Aug-13 Sep-13 Nov-13 Dec-13 May-13 Source: Bloomberg, Affin Source: Bloomberg, Affin
Maintain NEUTRAL, top pick for the sector is IJM Land We maintain our NEUTRAL rating on the sector. In our view, the market has broadly priced in a cyclical property slowdown. Our top pick for the sector is IJM Land. We continue to like IJM Land for its strong management, good branding, geographically diversified land bank and strong focus on the townships/ mass housing developments. We also like Tropicana for its strategic land bank, undemanding valuation of 0.4x P/RNAV and ongoing asset monetisation and de- gearing exercise. At its current valuation of 0.4x P/RNAV, we believe the market has largely priced in the negatives (high net gearing, weak property market, high concentration in integrated high-rise projects), but overlooked the positives (strategic land bank, good assets). We believe that timely execution of its de- gearing initiatives will be a key re-rating catalyst for Tropicana’s share price in 2014.
Fig 14: Property peers comparison Stock Rating Sh Pr TP Mkt Cap YearCore PE (x) EPS growth (%) P/RNAV P/B ROE (%) Div Yield (%) (RM) (RM) (RMm) End CY14 CY15 CY14 CY15 (x) (x) CY14 CY15 FY14 FY15 IOIPG REDUCE 2.59 2.50 8,389 June 12.7 10.3 19.6 24.0 0.6 0.8 5.9 6.8 1.4 1.5 SP Setia REDUCE 2.95 2.80 7,253 Oct 16.2 14.9 -9.6 8.7 0.6 1.3 7.8 8.4 3.6 4.4 Sunway ADD 2.89 3.15 4,981 Dec 10.6 10.3 -14.8 2.9 0.6 0.9 8.6 8.3 3.5 3.5 IJMLand BUY 2.97 3.30 4,630 Mar 12.4 11.8 16.5 5.4 0.8 1.5 11.5 11.2 2.0 2.4 UOA Dev ADD 2.11 2.22 2,827 Dec 8.7 8.5 -5.8 2.1 0.7 1.2 12.9 12.5 6.6 7.1 Tropicana BUY 1.44 1.80 1,999 Dec 5.9 10.5 42.3 -44.1 0.4 0.6 12.6 6.9 4.9 4.5 Source: Affin Note: Pricing as of close on 21 March 2014
Important disclosures at the end of report Page 8
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Stock summary IOIPG (REDUCE, TP RM2.50): We are generally cautious on the broad property market outlook, especially in certain market segments such as high-end condos and integrated developments in Johor, Singapore and China where IOIPG has large exposure;
SP Setia (REDUCE, TP RM2.80): We believe the persistent uncertainty in the group’s strategic direction and leadership transition will lead to further exodus of talent. This will, in turn, affect its operations and profit margins. We value SP Setia at a 40% discount to its RNAV, a discount to peers’ average valuation. That said, we believe the downside risk to the share price will be partly cushioned by the group’s strategic land bank and strong unbilled sales of over RM10bn;
Sunway (ADD, TP RM3.15): We like Sunway for its integrated real estate business model, strategic land bank and extensive experience in the construction sector. However, the continued weakness in the luxury condominium market and Iskandar Malaysia are likely to limit the stock’s upside potential;
IJM Land (BUY, TP RM3.30): Our top pick for the sector. We believe IJM Land’s property sales will be more resilient, relative to peers, given its primary focus on township projects/mass market housing development and better geographical diversification;
UOA (ADD, TP RM2.22): We like UOA for its undemanding valuation, strong cash position and good dividend yield. The key risk is its high project concentration in the integrated, high-rise property market;
Tropicana (BUY, TP RM1.80): We like Tropicana for its strategic land bank, proactive management and attractive valuation of 0.4x P/RNAV. A timely, well executed asset monetization plan would be the key re-rating catalyst.
Key investment risks Key upside risks to our NEUTRAL view on the sector are: (i) stronger-than- expected property sales where demand turns out to be more resilient than expected; and (ii) higher-than-expected market valuation for the upcoming major property IPOs (Iskandar Waterfront Holdings, Medini Iskandar Malaysia).
Key downside risks include: (i) weaker-than-expected property sales; (ii) higher- than-expected competition induced by the entry of foreign developers; and (iii) a steeper-than-expected hike in the mortgage financing cost.
Important disclosures at the end of report Page 9
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
IJM Land An emerging property sector bellweather Sector: Property Good land bank diversification, strong focus on township / mass housing IJM Land, a merged entity between IJM Properties and RB Land in 2008, is IJMLD MK among the largest listed developers in Malaysia. The group has, in our view, one RM2.97 @ 21 Mar 2014 of the best land banks, comprising 4,737 acres of land spread across the country’s key economic regions (Klang Valley, Penang, Johor) and upcoming property hot spots such as Seremban and East Malaysia. Importantly, IJM Land BUY (maintain) has strong focus on township and medium-cost high rise developments where demand is resilient. Price Target: RM3.30 (↑) Effective land bank (4,737 acres) Effective GDV (RM25.1bn)
Pg Johor Pg 6% 14% 23% S'ban 33%
Johor 25%
S'ban 13%
Klang E'Msia Valley Price Performance 6% 37% London Klang 3% Valley London E'Msia 1M 3M 12M 30% 0% 10% Absolute +17.9% +12.1% +27.4% Source: Company, Affin Source: Company, Affin Rel to KLCI +16.2% +13.2% +8.6% An emerging property sector bellweather Stock Data IJM Land is favoured for its strong management team, good product branding, strategically diversified land bank and good earnings track record. In our view, the Issued shares (m) 1,558.8 group is shaping up to be the next property sector bellweather. The resignation of Mkt cap (RMm)/(US$m) 4,629.7/1,399.3 Avg daily vol – 6 mth (m) 0.7 Tan Sri Liew from SP Setia has eroded SP Setia’s valuation premium and we expect 52-wk range (RM) 2.31-3.35 investors to switch into IJM Land, thereby improving its valuation. Est free float 24% BV per share (RM) 1.93 Our sector top pick, maintain BUY with a higher TP of RM3.30 P/BV (x) 1.54 We maintain our BUY rating with a higher TP of RM3.30 (from RM3.12) based on Net cash/ (debt) (RMm) (1Q14) (90.4) a 15% discount to its RNAV (from 20%). As the group starts to gain prominence ROE (FY14F) 11.7% Derivatives Nil. as the next sector bellweather, we believe its valuation will re-rate to 0.85x Shariah Compliant Yes P/RNAV – comparable to SP Setia’s average P/RNAV prior to its de-rating. IJM Land is our top pick for the property sector. We like IJM Land for its strong Key Shareholders management, good branding, strategic land bank, and strong 24% earnings CAGR over FY13-16E. Key risks to our positive view on IJM Land include a IJM Corp 64.2% sharper-than-expected property market slowdown, lower-than-expected sales EPF 7.0% and a weaker-than-expected profit margin. GIC 5.2%
Earnings & Valuation Revisions Earnings & Valuation Summary
FYE Mar (RMm) 2012 2013 2014E 2015E 2016E 14E 15E 16E Revenue 1206.0 1250.1 1833.6 1839.61889.6 Prev EPS (sen) 22.9 24.2 25.5 EBITDA 261.4 288.6 434.1 405.1 389.2 Curr EPS (sen) 22.9 24.2 25.5 Pretax profit 281.9 320.1 475.1 462.4 487.7 Chg (%) - - - Net profit 193.7 215.1 347.5 343.0 361.0 Prev target price (RM) 3.12 EPS (sen) 14.0 15.2 24.5 24.2 25.5 Curr target price (RM) 3.30 PER (x) 21.3 19.6 12.1 12.3 11.6
Source: Bloomberg, Affin forecasts Core net profit 193.7 189.7 324.1 343.0 361.0
Core EPS (sen) 14.0 13.4 22.9 24.2 25.5
Core EPS chg (%) -1.1 -3.9 70.8 5.9 5.3
Core PER (x) 21.3 22.2 13.0 12.3 11.6
DPS (sen) 4.0 5.0 6.0 7.0 7.5 Dividend Yield (%) 1.3 1.7 2.0 2.4 2.5
EV/EBITDA (x) 14.9 14.3 9.7 9.9 10.1 Isaac Chow Consensus profit - - 320.0 362.2 392.3 (603) 2145 0412 Affin/Consensus (x) - - 1.1 0.9 0.9 [email protected] Source: Company, Affin forecasts
Important disclosures at the end of report Page 10
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
IJM Land’s RNAV Projects Description Tenure Remaining Remaining Years to Equity NPV size (acres) GDV (RM mil) develop interest (RM mil) Northern Region Permatang Tinggi Mixed development Freehold 140 365 7 100% 40.8 Jelutong Mixed development Freehold 95 6,000 15 80% 588.5 Jelutong Mixed development Leasehold 33 800 10 80% 81.2 Bukit Jambul Residential Leasehold 25 90 4 86% 9.0
Central Region Bukit Manda'rina Mixed development Leasehold 10 400 5 100% 53.8 Laman Granview North Residential Leasehold 16 320 6 100% 43.2 Jalan Raja Laut Commercial Leasehold 2 450 3 100% 84.7 Shah Alam 2 Mixed development Leasehold 403 1,150 11 100% 145.7 SS2, PJ Commercial Freehold 1 19 1 100% 2.3 Bandar Rimbayu Mixed development Leasehold 1,878 11,000 20 50% 451.0 Serenia Garden (Ukay Green) Residential Leasehold 35 580 6 50% 46.6 Sh'ng Villa (Pandan Bistari) Residential Leasehold 35 550 6 50% 35.9 Seri Riana, Wangsa Maju Residential Leasehold 2 230 4 50% 14.8 Pantai Sentral Park, Kerinchi Mixed development Leasehold 57.8 2,000 8 40% 100.9
Seremban/Melak a S2 Township Mixed development Freehold 280 465 7 100% 72.8 S2 CC Mixed development Freehold 40 70 5 100% 10.9 S2 Heights Mixed development Freehold 1,254 2,750 11 100% 422.9 1 Lagenda, Melaka Sentral Commercial Leasehold 4 10 1 100% 1.3
Southern Region Suria Bistari/Suria Heights Residential Leasehold 8 180 3 51% 9.7 Mount Austin Mixed development Freehold 250 1,000 10 100% 94.9 Sebana Cove Mixed development Freehold/Leasehold 1,188 1,400 10 70% 104.8 Nusa Duta Mixed development Freehold 9 155 3 100% 19.1 Nasa Land JV Mixed development Freehold 137 2,500 8 50% 162.5
Eastern Region Bandar Utama, Sandakan Mixed development Leasehold 66 700 6 100% 80.5 Bandar Utama, Sandakan Mixed development Freehold 18 190 5 100% 25.6 Bandar Indah, Sandakan Mixed development Leasehold 59 395 5 100% 53.1 Jalan Tuaran, Kota Kinabalu Condominiums Leasehold 7 205 3 100% 24.7 Jalan Fook Kim, Sandakan Mixed development Leasehold 30 135 5 100% 18.9 Jalan Sibuga, Sandakan Mixed development Leasehold 117 580 7 100% 57.9 Kuching Riverine Mixed development Leasehold 3 193 6 100% 21.7
International Royal Mint Street, London Mixed development Freehold 3 1,500 5 51% 80.1
Total 6,206 36,382 2,959.9
Unbilled sales 195.6
Investment properties Net BV Market value Surplus (RM mil) (RM mil) (RM mil) Hotel Hospitality Leasehold 154.5 280.0 100% 125.5
Total 125.5
Shareholders' fund (as at Mar 31, 2013) 2,626.8 Add: Warrants conversion 171.5 RNAV 6,079.3 Enlarged shares base (mil) 1,560.6
Fully diluted RNAV per share (RM) 3.90 Target Price based 15% discount to RNAV 3.30 Source: Affin
Important disclosures at the end of report Page 11
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
IJM Land – FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Mar (RMm) 2012 2013 2014E 2015E 2016E FYE 31 Mar (RMm) 2012 2013 2014E 2015E 2016E Revenue 1206.0 1250.1 1833.6 1839.6 1889.6 Grow th Operating expenses -935.0 -955.2 -1399.5 -1434.5 -1500.3 Revenue (%) 3.8 3.7 46.7 0.3 2.7 EBITDA 261.4 288.6 434.1 405.1 389.2 EBITDA (%) 2.6 10.4 50.4 -6.7 -3.9 Depreciation -8.0 -8.8 -9.1 -11.7 -14.3 Core net profit (%) 22.1 -2.1 70.8 5.9 5.3 EBIT 253.5 279.8 425.0 393.4 374.9 Net int income/(expense) 35.3 23.6 14.9 13.3 16.4 Profitability Associates' contribution -7.0 -10.1 11.8 55.7 96.3 EBITDA margin (%) 21.7 23.1 23.7 22.0 20.6 Others 0.0 26.8 23.4 0.0 0.0 PBT margin (%) 23.4 25.6 25.9 25.1 25.8 Pretax profit 281.9 320.1 475.1 462.4 487.7 Net profit margin (%) 16.1 17.2 18.9 18.6 19.1 Tax -81.6 -89.0 -110.0 -101.7 -97.8 Effective tax rate (%) 28.9 29.5 25.0 25.0 25.0 Minority interest -6.6 -16.1 -17.7 -17.7 -28.8 ROA (%) 4.4 4.5 6.4 5.7 5.7 Net profit 193.7 215.1 347.5 343.0 361.0 Core ROE (%) 9.1 7.5 11.7 11.4 11.1 ROCE (%) 9.4 9.4 12.9 11.1 9.8 Balance Sheet Statement Dividend payout ratio (%) 28.7 32.9 24.4 28.9 29.4 FYE 31 Mar (RMm) 2012 2013 2014E 2015E 2016E Fixed assets 175.9 176.2 267.1 355.4 441.1 Liquidity Other long term assets 1,387.8 1,698.9 1,734.1 1,789.8 1,886.1 Current ratio (x) 3.7 3.4 2.7 2.7 2.7 Total non-current assets 1,563.6 1,875.1 2,001.2 2,145.2 2,327.2 Op. cash flow (RMm) 50.8 150.0 82.7 373.1 224.2 Cash and equivalents 625.3 607.9 560.9 761.4 810.9 Free cashflow (RMm) -62.2 46.8 -17.3 273.1 124.2 Stocks 178.0 166.8 244.7 245.5 252.2 FCF/share (sen) -4.5 3.3 -1.2 19.3 8.8 Debtors 569.2 456.3 753.5 756.0 776.5 Other current assets 1,530.4 1,973.5 2,241.9 2,290.2 2,353.0 Asset management Total current assets 2,902.9 3,204.6 3,801.0 4,053.0 4,192.5 Debtors turnover (days) 172.3 133.2 150.0 150.0 150.0 Creditors 666.7 808.3 1,227.6 1,362.0 1,399.8 Stock turnover (days) 53.9 48.7 48.7 48.7 48.7 Short term borrow ings 112.9 110.7 145.3 145.3 145.3 Creditors turnover (days) 294.6 348.1 350.0 380.0 380.0 Other current liabilities 1.9 13.4 13.4 13.4 13.4 Total current liabilities 781.5 932.5 1,386.4 1,520.7 1,558.6 Capital structure Long term borrow ings 286.8 414.1 402.5 402.5 402.5 Net gearing (%) -9.3 -3.2 -0.5 -6.8 -7.8 Other long term liabilities 918.2 1,039.8 1,039.8 1,039.8 1,039.8 Interest cover (x) 7.9 8.5 25.1 30.8 25.8 Total long term liabilities 1,205.0 1,453.9 1,442.4 1,442.4 1,442.4 Shareholders' Funds 2,429.6 2,626.8 2,889.3 3,133.2 3,388.1 Minority interest 50.4 66.6 84.2 101.9 130.7 Quarterly Profit & Loss FYE 31 Mar (RMm) 3Q134Q131Q142Q143Q14 Cash Flow Statement Revenue 358.0 373.2 459.9 426.2 468.9 FYE 31 Mar (RMm) 2012 2013 2014E 2015E 2016E Operating expenses -268.5 -286.0 -344.2 -322.1 -351.2 Pretax profit 281.9 320.1 475.1 462.4 487.7 EBIT 87.4 87.2 113.4 101.8 114.8 Depreciation & amortisation 8.0 8.8 9.1 11.7 14.3 Net int income/(expense) -9.2 -9.9 -8.2 -8.2 -8.9 Working capital changes -56.1 -26.0 -224.2 82.8 -52.1 Associates' contribution -5.3 -0.3 -2.7 1.7 1.0 Cash tax paid -124.7 -109.9 -110.0 -101.7 -97.8 Exceptional Items 0.0 0.0 6.6 16.8 4.4 Others -58.2 -43.0 -67.4 -82.1 -127.8 Pretax profit 87.2 95.5 121.1 127.4 134.0 Cashflow from operation 50.8 150.0 82.7 373.1 224.2 Tax -29.5 -24.8 -32.5 -30.1 -33.8 Capex -113.0 -103.2 -100.0 -100.0 -100.0 Minority interest -4.1 -5.4 -6.9 -5.8 -4.2 Others -57.6 -105.3 32.1 26.4 31.4 Net profit 53.6 65.3 81.7 91.6 95.9 Cash flow from investing -170.6 -208.5 -67.9 -73.6 -68.6 Core net profit 53.6 65.3 75.1 74.7 91.5 Debt raised/(repaid) 48.4 122.2 23.1 0.0 0.0 Dividends paid -55.0 -55.9 -84.9 -99.1 -106.2 Margins (%) Others 59.8 -29.8 0.0 0.0 0.0 EBIT 24.4 23.4 24.7 23.9 24.5 Cash flow from financing 53.2 36.4 -61.9 -99.1 -106.2 PBT 24.4 25.6 26.3 29.9 28.6 Free Cash Flow -62.2 46.8 -17.3 273.1 124.2 Net profit 15.0 17.5 17.8 21.5 20.5 Source: Company, Affin forecasts
Important disclosures at the end of report Page 12
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
IOI Properties An unexciting property giant Sector: Property Integrated high rise projects account for 81% of upcoming project GDV While IOI Properties Group (“IOIPG”) is generally known as a township IOIPG MK developer with strong focus on landed properties, we note that its ongoing and RM2.59 @ 21 Mar 2014 upcoming project pipeline (1-3 years) deviates from its core competency. We estimate that landed properties (residential, shoplots, factories) only account for 19% of its upcoming project GDV while integrated high rise developments (local REDUCE (maintain) and abroad) account for a larger 81%.
Price Target: RM2.50 (↔) Eff. land for upcoming projects (667ac) Effective upcoming GDV (RM23.9bn) Johor S'pore 41% 37% (RM) S'pore 3.20 2% 3.10
3.00 China
2.90 8%
2.80
2.70 Johor
2.60 20%
2.50
2.40 15-Jan 31-Jan 16-Feb 4-Mar 20-Mar China Others 14 % Klang 17 % Others Price Performance Valley Klang 3% 32% Valley 26% 1M 3M 12M Source: Company, Affin Source: Company, Affin Absolute -0.4% na na Rel to KLCI -2.4% na na Operational weakness outweigh balance sheet and land bank strength While we like IOIPG’s large land bank and strong balance sheet, we opine that Stock Data operationally, IOIPG is less efficient in capital management vis-a-vis its top
Issued shares (m) 3,239.0 performing peers (lower ROE). The group also has high exposure to the more Mkt cap (RMm)/(US$m) 8,389.0/2,535.6 volatile Singapore and China property markets that jointly account for 50% of its Avg daily vol – 6 mth (m) na upcoming projects’ GDV. To date, IOIPG has an uninspiring Singapore track 52-wk range (RM) 2.53-3.56 record where the take up for some key projects have been rather disappointing. Est free float 42% BV per share (RM) 3.37 Strategy-wise, management’s long investment horizon and lack of dividend P/BV (x) 0.77 policy may not match some investors’ investment horizon and investment criteria. Net cash/ (debt) (RMm) (2Q14) 152.6 ROE (FY14F) 5.4% Maintain REDUCE with an unchanged TP of RM2.50 Derivatives Nil. Maintain REDUCE with an unchanged TP of RM2.50 based on a 40% discount Shariah Compliant Yes to RNAV. We opine that IOIPG’s weakness (low ROE, high exposure to China & Key Shareholders Singapore, possible margin compression and lack of dividend policy) far outweigh its strength and thus warrants a steeper 40% discount to RNAV Tan Sri Dato’ Lee Shin Cheng 49.0% (compared to the average 30% discount applied to its peers). Key upside risks to EPF 9.4% our negative view are stronger-than-expected property sales, faster-than- expected rollout of new township projects and higher-than-expected investor Earnings & Valuation Revisions demand for IOIPG shares due to its Shariah compliance status and a constituent of the FBM KLCI. 14E 15E 16E
Prev EPS (sen) 17.9 22.7 27.7 Earnings & Valuation Summary Curr EPS (sen) 17.9 22.7 27.7 FYE June (RMm) 2012 2013 2014E 2015E 2016E Chg (%) - - - Revenue 1,052.2 1,323.3 1,660.1 2,066.7 2,843.5 Prev target price (RM) 2.50 EBITDA 514.0 636.9 632.3 809.6 1,082.6 Curr target price (RM) 2.50 Pretax profit 755.7 904.8 947.4 962.4 1,174.0
Source: Bloomberg, Affin forecasts Net profit 599.8 693.6 771.7 736.4 898.1
EPS (sen) 18.5 21.4 23.8 22.7 27.7
PER (x) 14.0 12.1 10.9 11.4 9.3
Core net profit 447.4 520.9 581.2 736.4 898.1
Core EPS (sen) 13.8 16.1 17.9 22.7 27.7
Core EPS chg (%) (11.4) 16.4 11.6 26.7 22.0
Core PER (x) 18.8 16.1 14.4 11.4 9.3 Isaac Chow DPS (sen) - - 3.5 4.0 4.5 (603) 2145 0412 Dividend Yield (%) - - 1.4 1.5 1.7 [email protected] EV/EBITDA (x) - 13.3 13.6 11.0 8.5 Consensus profit - - 661.6 702.2 974.7 Affin/Consensus (x) - - 1.2 1.0 0.9 Source: Company, Affin forecasts
Important disclosures at the end of report Page 13
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
IOIPG’s RNAV Land bank State Land area BV Mkt Price MV Equity Surplus (acres) (RMm) (RMpsf) (RMm) Interest (RMm) Bandar Puteri Puchong Selangor 185 99 120 969 100% 869 Bandar Puchong Jaya Selangor 39 64 120 204 100% 140 IOI Resort City Selangor 59 29 60 155 100% 125 16 Sierra Selangor 311 352 35 474 100% 122 Dengkil Selangor 65 17 20 56 100% 39 Kota Warisan Selangor 202 210 20 176 100% (34) Salak Tinggi Selangor 132 56 15 86 100% 30 Beranang Selangor 309 476 35 471 100% (5) Seksyen 13, PJ Selangor 6 31 300 72 50% 20 Jalan Ampang Kuala Lumpur 4 57 800 131 100% 73 Medini Johor 7 132 400 122 100% (10) Plentong Johor 10 60 150 64 90% 4 Taman Kempas Baru Johor 76 115 60 197 90% 74 Kempas Johor 4 13 80 12 90% (0) Bandar Putra Kulai Johor 105 39 25 114 81% 61 Bandar Putra Kulai (agri) Johor 3,492 97 3 456 92% 332 Taman Lagenda Putra, Kulai Johor 61 46 25 66 70% 14 Senai, Kulaijaya Johor 507 94 10 221 92% 117 Tangkak Johor 282 8 4 49 100% 41 Bandar Putra, Segamat Johor 109 25 10 47 100% 23 Segamat Estate Johor 1,279 216 4 223 100% 7 Jasin Melaka 4,077 236 1 237 24% 0 Air Keroh Melaka 1,074 38 3 117 98% 77 Paya Rumput Melaka 264 27 3 34 100% 7 Rompin N. Sembilan 1,118 92 3 146 100% 54 Subtotal 2,180 Oversea development Country Land area GDV Valuation Equity Surplus projects (acres) (RMm) Interest (RMm) The Trilinq @ Clementi Singapore 6 2,472 DCF @ 10% 88% 196 Seascape @ Sentosa Singapore 5 5,004 DCF @ 10% 65% 180 Cityscape @ Farrer Park Singapore 2 1,012 DCF @ 10% 60% 27 South Beach Singapore 9 2,371 DCF @ 10% 50% 117 IOI Park Bay, Xiamen China 8 941 DCF @ 16% 100% 115 IOI Palm City, Xiamen China 21 2,516 DCF @ 16% 100% 256 Subtotal 891
Investment Description NLA BV Mkt Price MV Equity Surplus properties ('000 sf) (RMm) (RMpsf) (RMm) Interest (RMm) IOI Mall Puchong Retail mall 864 523 700 605 100% 82 IOI Mall Kulai Retail mall 248 76 300 74 100% (2) PFCC Tower 1 & 2 Office towers 377 147 400 151 100% 4 One & Two IOI Square Office towers 441 209 450 198 100% (11) Putrajaya Marriot Hotel 5-star hotel 488 rooms 123 RM300k/room 146 100% 24 Putrajaya Garden Hotel 4-star hotel 151 rooms 18 RM200k/room 30 100% 13 Palm Garden Golf Club 18 hole golf course 145.7 acre 129 20 127 100% (2) IOI Palm Villa Golf & Country 27 hole golf course 246.7 acre 24 3 32 100% 8 Subtotal 116
Total net surplus (RMm) 3,187 Shareholders' fund (RMm) 10,335 Total RNAV (RMm) 13,522
Share base (m) 3,239
RNAV/share (RM) 4.17 Discount (%) 40% Target price (RM) 2.50 Source: Affin
Important disclosures at the end of report Page 14
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
IOI Properties – FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 30 Jun (RMm) 2012 2013 2014E 2015E 2016E FYE 30 Jun (RMm) 2012 2013 2014E 2015E 2016E Revenue 1,052.2 1,323.3 1,660.1 2,066.7 2,843.5 Grow th Operating expenses -538.2 -686.4 -1,027.8 -1,257.1 -1,760.9 Revenue (%) -10.2 25.8 25.5 24.5 37.6 EBITDA 514.0 636.9 632.3 809.6 1,082.6 EBITDA (%) -9.4 23.9 -0.7 28.0 33.7 Depreciation -13.8 -14.6 -16.1 -16.8 -17.4 Core net profit (%) -11.4 16.4 11.6 26.7 22.0 EBIT 500.2 622.2 616.2 792.8 1,065.2 Net int income/(expense) 44.7 1.1 -13.8 -20.6 -30.6 Profitability Associates' contribution 41.4 89.4 147.0 190.1 139.3 EBITDA margin (%) 48.9 48.1 38.1 39.2 38.1 Others 169.3 192.0 198.0 0.0 0.0 PBT margin (%) 71.8 68.4 57.1 46.6 41.3 Pretax profit 755.7 904.8 947.4 962.4 1,174.0 Net profit margin (%) 57.0 52.4 46.5 35.6 31.6 Tax -144.8 -191.2 -159.8 -194.8 -260.4 Effective tax rate (%) 19.2 21.1 16.9 20.2 22.2 Minority interest -11.2 -20.0 -15.8 -31.2 -15.4 ROA (%) na 5.8 6.2 5.5 6.1 Net profit 599.8 693.6 771.7 736.4 898.1 Core ROE (%) na 5.0 5.4 6.3 7.3 Core pretax profit 586.4 712.8 749.4 962.4 1,174.0 ROCE (%) na 5.7 5.4 6.5 8.1 Core net profit 447.4 520.9 581.2 736.4 898.1 Dividend payout ratio (%) na 0.0 14.7 17.6 16.2
Balance Sheet Statement Liquidity FYE 30 Jun (RMm) 2012 2013 2014E 2015E 2016E Current ratio (x) na 3.4 2.6 2.3 2.1 Fixed assets na 991 1,075 1,159 1,241 Op. cash flow (RMm) na 459.0 566.3 455.4 399.4 Other long term assets na 8,055 8,802 9,492 10,082 Free cashflow (RMm) na -1491.1 16.3 -44.6 -100.6 Total non-current asset na 9,047 9,878 10,651 11,323 FCF/share (sen) na -46.0 0.5 -1.4 -3.1 Cash and equivalents na 441 391 263 102 Stocks na 123 204 253 364 Asset management Debtors na 457 573 713 981 Debtors turnover (days) na 125.9 125.9 125.9 125.9 Other current assets na 1,915 1,942 2,106 2,586 Stock turnover (days) na 552.2 463.7 410.0 373.9 Total current assets na 2,937 3,110 3,335 4,033 Creditors turnover (days) na 337.5 337.5 337.5 337.5 Creditors na 486 804 997 1,434 Short term borrow ings na - - 50 100 Capital structure Other current liabilities na 386 386 386 386 Net gearing (%) na 0.6 1.8 4.1 6.3 Total current liabilities na 873 1,190 1,433 1,920 Interest cover (x) na 15.5 25.5 26.7 29.2 Long term borrow ings na 502 600 700 800 Other long term liabilities na 246 246 246 246 Quarterly Profit & Loss Total long term liabilitie na 749 846 946 1,046 FYE 30 Jun (RMm) 1Q14 2Q14 Shareholders' Funds na 10,335 11,305 11,928 12,697 Revenue 325.9 395.2 Minority interest na 27 43 74 89 Operating expenses -183.8 -224.3 EBIT 142.1 170.9 Cash Flow Statement Net int income/(expense) -0.3 -1.7 FYE 30 Jun (RMm) 2012 2013 2014E 2015E 2016E Associates' contribution 24.8 9.8 Pretax profit na 904.8 947.4 962.4 1174.0 Exceptional Items 0.0 198.0 Depreciation & amortisation na 20.0 16.1 16.8 17.4 Pretax profit 166.5 377.0 Working capital changes na -19.5 93.8 -159.5 -422.8 Tax -53.7 -69.0 Cash tax paid na -165.8 -159.8 -194.8 -260.4 Minority interest -0.4 -7.8 Others na -280.3 -331.2 -169.5 -108.8 Net profit 112.5 300.2 Cashflow from operatio na 459.0 566.3 455.4 399.4 Core net profit 112.5 109.9 Capex na -1950.1 -550.0 -500.0 -500.0 Others na -238.3 -139.0 -90.2 -43.4 Margins (%) Cash flow from investin na -2188.4 -689.0 -590.2 -543.4 EBIT 44% 43% Debt raised/(repaid) na 0.0 97.6 150.0 150.0 PBT 51% 95% Dividends paid na -40.3 0.0 -113.4 -129.6 Net profit 35% 76% Others na 1575.5 -24.8 -30.4 -37.1 Cash flow from financin na 1535.2 72.8 6.3 -16.7 Free Cash Flow na -1491.1 16.3 -44.6 -100.6 Source: Company, Affin forecasts
Important disclosures at the end of report Page 15
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Persistent uncertainties to affect operations, margins SP Setia A well-established developer Sector: Property SP Setia is a well-established developer with significant market presence in Malaysia’s key economic centres – Klang Valley, Penang and Johor Bahru. SPSB MK Under the leadership of the outgoing President & CEO Tan Sri Liew Kee Sin, the RM2.95 @ 21 Mar 2014 group has grown from a smallish constructor-cum-developer into one of the nation’s largest developers. In 2012, SP Setia formed a consortium with Sime Darby Bhd and the Employees Provident Fund Board to acquire and develop the REDUCE (maintain) GBP8bn (RM40bn) London Battersea Power Station project. Elsewhere, SP Setia has also launched some well-received projects in Melbourne and Price Target: RM2.80 (↔) Singapore. The group has, in our view, one of the best land banks and development mix among listed developers. (RM) 4.50 Effective land bank (4,060 acres) Effective GDV (RM73.2bn) 4.00 Johor 3.50 10% Pg Johor 3.00 3% 18% 2.50
2.00 Mar-11 Mar-12 Mar-13 Mar-14 Pg 2% Klang UK UK Price Performance Valley 22% Klang 0% 56% Valley 1M 3M 12M 72% Others 8% Absolute +0.0% -5.4% -8.2% Others 9% Rel to KLCI -1.4% -4.5% -20.6% Source: Company, Affin Source: Company, Affin Stock Data Leadership transition a negative
Issued shares (m) 2,458.7 Notwithstanding its strong branding, strategic land bank and burgeoning unbilled Mkt cap (RMm)/(US$m) 7,253.2/2,192.3 sales of RM9.6bn, the resignation of key stalwarts Tan Sri Liew (President & Avg daily vol – 6 mth (m) 1.1 CEO) and Dato’ Teow Leong Seng (CFO) as well as the exodus of other talents 52-wk range (RM) 2.70-3.99 Est free float 23% have reduced the appeal of SP Setia. Prior to the resignation of Tan Sri Liew, SP BV per share (RM) 2.29 Setia was a sector bell-weather and consistently traded at a premium to peers. P/BV (x) 1.28 The stock’s valuation premium has since disappeared and the group now trades Net cash/ (debt) (RMm) (1Q14) (1,543.1) at a comparable valuation to peers. In view of the persistent uncertainties and ROE (FY14F) 8.5% Derivatives Nil. high staff turnover, we expect its valuation to further de-rate to a discount to Shariah Compliant No peers.
Key Shareholders Maintain REDUCE with an unchanged TP of RM2.80 Maintain REDUCE with an unchanged TP of RM2.80 based on a 40% discount PNB 63.8% to its RNAV. We believe the persistent uncertainty in the group’s strategic KWAP 6.7% direction will lead to further exodus of talents. We believe this will in turn affect EPF 6.3% operation and profit margins. Key upside risks to our negative view on SP Setia are stronger-than-expected property sales and better-than-expected Earnings & Valuation Revisions improvement in the group’s internal operations.
14E 15E 16E Earnings & Valuation Summary
Prev EPS (sen) 19.3 21.9 27.6 FYE Oct (RMm) 2012 2013 2014E 2015E 2016E Curr EPS (sen) 19.3 21.9 27.6 Revenue 2,526.6 3,060.5 3,589.5 4,524.7 5,823.6
Chg (%) - - - EBITDA 532.5 543.2 639.8 778.3 963.4 Prev target price (RM) 2.80 Pretax profit 567.5 570.3 660.0 756.6 943.3 Curr target price (RM) 2.80 Net profit 393.4 417.9 474.9 537.4 677.5
Source: Bloomberg, Affin forecasts EPS (sen) 20.5 17.9 19.3 21.9 27.6
PER (x) 14.4 16.5 15.3 13.5 10.7
Core net profit 393.4 417.9 474.9 537.4 677.5
Core EPS (sen) 20.5 17.9 19.3 21.9 27.6
Core EPS chg (%) 27.1 (12.6) 7.7 13.2 26.1
Core PER (x) 14.4 16.5 15.3 13.5 10.7
DPS (sen) 10.5 10.6 13.0 14.0 14.0 Isaac Chow Dividend Yield (%) 3.6 3.6 4.4 4.7 4.7 (603) 2145 0412 EV/EBITDA (x) 15.5 16.7 13.5 10.9 8.3 [email protected] Consensus profit - - 514.8 658.6 780.5 Affin/Consensus (x) - - 0.9 0.8 0.9 Source: Company, Affin forecasts
Important disclosures at the end of report Page 16
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
SP Setia’s RNAV Projects Type Remaining Remaining NPV Stake Surplus Area (acre) GDV (RMm ) (RMm) (%) (RM mil) Central Region Setia Alam, Shah Alam Mixed tow nship 712 4,700 595 100% 595 Setia Eco Park, Shah Alam Semi-Ds and bungalow s 315 3,100 392 50% 196 Kenny Hills Grande, Kuala Lumpur Bungalow s 6 280 26 70% 18 Setia City, Shah Alam Commercial 114 10,000 813 100% 813 Setia Nexus 2, Klang Commercial 5 288 19 70% 13 KL EcoCity Mixed development 9 7,200 621 100% 621 Putrajaya - P 15 Mixed tow nship 161 1,000 86 60% 51 Setia Eco Glades, Cyberjaya Mixed tow nship 205 3,000 301 70% 210 Beranang Mixed tow nship 1011 3,500 169 100% 169 Setia Eco Hills, Rinching Mixed tow nship 436 4,000 284 100% 284 Seputeh Land Residential 5 520 62 100% 62 Setia Federal Hill, Bangsar Mixed development 52 8,000 414 50% 207 British High Commission Land Residential 3 1,000 66 100% 66 Setia Eco Templer Mixed tow nship 195 1,240 90 100% 90
Southern Region Setia Tropika, Johor Mixed tow nship 157 1,700 167 100% 167 Bukit Indah Johor Mixed tow nship 100 1,400 137 100% 137 Setia Indah Johor Mixed tow nship 10 100 11 100% 11 Setia Eco Gardens, Johor Mixed tow nship 323 2,100 198 70% 138 Setia Eco Cascadia, Johor Mixed tow nship 139 1,500 93 100% 93 Setia Business Park II Industrial 108 1,000 99 100% 99 88 Setia Residential 1 450 35 100% 35 Northern Region Setia Pearl Island, Penang Residential 21 450 38 100% 38 Setia V Residences Residential 0 550 60 100% 60 Setia Greens Residential 12 200 22 100% 22 Brook Rd Residential 0 60 7 100% 7 Tanjung Bungah Land Residential 35 1,000 87 100% 87
Others Aeropod @ Tg Aru, Sabah Commercial 38 1,700 154 70% 108 EcoLakes, My Phuoc, Vietnam Mixed tow nship 511 2,520 176 55% 97 EcoXuan, Lai Thieu, Vietnam Mixed tow nship 11 600 42 95% 40 Fulton Lane, Melbourne, Australia Residential 0 1,200 124 100% 124 Parque, Melbourne, Australia Residential 2 800 69 100% 69 Woodsville Close, Singapore Residential 0 318 27 100% 27 Eco Sanctuary, Singapore Residential 0 1,000 52 100% 52 Battersea, London Mixed development 34 40,000 2,897 40% 1,159
Total surplus 5,965.4 Shareholder's equity as at 31 October 2013 (RM mil) 5,525.5 Total RNA V 11,490.9 Enlarged shares base (mil) 2,458.7 Fully diluted RNAV per share (RM) 4.67 Target price based on 40% discount to RNAV 2.80 Source: Affin
Important disclosures at the end of report Page 17
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
SP Setia – FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Oct (RMm) 2012 2013 2014E 2015E 2016E FYE 31 Oct (RMm) 2012 2013 2014E 2015E 2016E Revenue 2,527 3,061 3,590 4,525 5,824 Grow th Operating expenses (1,994) (2,517) (2,950) (3,746) (4,860) Revenue (%) 13.2 21.1 17.3 26.1 28.7 EBITDA 533 543 640 778 963 EBITDA (%) 41.8 2.0 17.8 21.6 23.8 Depreciation (15) (24) (26) (29) (32) Core net profit (%) 33.0 6.2 13.7 13.2 26.1 EBIT 517 519 613 749 931 Net int inc/(exp) 50 51 7 8 12 Profitability Associates' contribution 0 (0) (0) (0) (0) EBITDA margin (%) 21.1 17.7 17.8 17.2 16.5 Others - - 40 - - PBT margin (%) 22.5 18.6 18.4 16.7 16.2 Pretax profit 568 570 660 757 943 Net profit margin (%) 15.6 13.7 13.2 11.9 11.6 Tax (180) (151) (155) (189) (236) Effective tax rate (%) 31.7 26.5 25.0 25.0 25.0 Minority interest 6 (1) (30) (30) (30) ROA (%) 4.2 3.5 3.7 4.0 4.6 Net profit 393 418 475 537 677 Core ROE (%) 10.5 8.8 8.5 9.2 10.9 ROCE (%) 6.5 5.5 6.6 8.1 9.9 Balance Sheet Statement Dividend payout ratio (%) 51.2 59.1 50.5 48.0 38.1 FYE 31 Oct (RMm) 2012 2013 2014E 2015E 2016E Fixed assets 680 734 807 878 946 Liquidity Other long term assets 4,693 5,337 5,937 6,437 6,937 Current ratio (x) Total non-curr assets 5,373 6,071 6,745 7,315 7,883 Op. cash flow (RMm) 629.5 649.1 705.8 957.3 1,264.6 Cash and equivalents 1,544 2,163 2,167 2,061 2,256 Free cashflow (RMm) 439.6 461.3 605.8 857.3 1,164.6 Stocks 24 24 28 36 46 FCF/share (sen) (131.5) (37.1) 12.4 20.6 31.1 Debtors 744 922 1,081 1,362 1,753 Other current assets 1,669 2,803 2,803 2,803 2,803 Asset management Total current assets 3,980 5,911 6,079 6,262 6,859 Debtors turnover (days) 116.8 99.3 101.8 98.5 97.6 Creditors 1,375 2,158 2,550 3,252 4,233 Stock turnover (days) 3.6 2.8 2.6 2.6 2.6 Short term borrow ings 1,521 631 662 695 730 Creditors turnover (days) 196.2 256.1 291.2 282.6 281.1 Other current liabilities 54 44 44 44 44 Total current liab 2,950 2,832 3,256 3,991 5,007 Capital structure Long term borrow ings 2,362 3,348 2,891 2,600 2,300 Net gearing (%) 57.8 33.2 24.3 20.6 12.1 Other long term liabilities 2 81 81 81 81 Interest cover (x) 35.4 9.5 13.6 17.2 23.0 Total long term liab 2,364 3,429 2,972 2,681 2,381 Shareholders' Funds 4,039 5,722 6,596 6,905 7,354 Quarterly Profit & Loss Cash Flow Statement FYE 31 Oct (RMm ) 1Q13 2Q13 3Q13 4Q13 1Q14 FYE 31 Oct (RMm) 2012 2013 2014E 2015E 2016E Revenue 734.9 711.3 761.5 900.2 721.6 Pretax Profit 568 570 660 757 943 Operating expenses (599.8) (596.8) (630.2) (749.4) (617.4) Depr. & amort. 15 24 26 29 32 EBITDA 135.2 114.5 131.3 150.8 104.2 Working capital changes 324 455 228 413 579 Depreciation 3.0 3.0 3.0 3.0 3.0 Cash tax paid (176) (244) (155) (189) (236) EBIT 138.2 117.5 134.3 153.8 107.2 Others (101) (156) (54) (53) (54) Int expense 0.5 12.6 10.1 26.0 48.7 C/F frm operation 630 649 706 957 1,265 Associates' contribution (2.9) 0.0 0.0 (0.2) (8.8) Capex (190) (188) (100) (100) (100) Exceptional items 0.0 0.0 0.0 0.0 0.0 Disposal/(purchases) (3,077) (1,373) (300) (350) (400) Pretax profit 135.7 130.1 144.5 179.6 147.2 Others 25 (132) (246) (97) (46) Tax (30.0) (35.6) (40.3) (52.2) (30.2) C/F frm investing (3,242) (1,692) (646) (547) (546) Minority interest (12.6) 1.3 (2.3) (0.1) (20.2) Debt raised/(repaid) 2,452 642 (425) (258) (265) Net profit 93.2 95.8 101.9 127.3 96.8 Equity raised/(repaid) 408 1,339 - - - Core net profit 93.2 95.8 101.9 127.3 96.8 Net int inc/(exp) - - - - - Dividends paid (205) (254) (240) (258) (258) Margins (%) Others (7) 53 609 - - EBITDA 18.4 16.1 17.2 16.7 14.4 C/F frm financing 2,649 1,779 (56) (516) (523) PBT 18.5 18.3 19.0 20.0 20.4 Net profit 12.7 13.5 13.4 14.1 13.4 Fr e e C/F 440 461 606 857 1,165 Source: Company, Affin forecasts
Important disclosures at the end of report Page 18
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Sunway An integrated real estate group An integrated real estate group Berhad Sunway Berhad, a merged entity between Sunway City and Sunway Holdings vide a cash and share swap exercise in 2011, adopts an integrated real estate Sector: Property business model with business operations spanning across the real estate value
SWB MK chain ranging from quarry operations, trading and manufacturing of building materials, construction, property development, property investment, REIT, RM2.89 @ 21 Mar 2014 themepark operation, medical centres and education buildings. Broadly, the property development, property investment and REIT business contributes to ADD (maintain) 75% of its profit, followed by 15% from construction and 10% from other businesses.
Price Target: RM3.15 (↔) Effective land bank (2,176 acres) Effective GDV (RM29.5bn) Pg Pg S'pore S'pore 6% Johor 7% 0% Johor 2% 47% 57% China China 3% 1% Others 5% Others 15% Klang Valley 27%
Klang Price Performance Valley 30%
Source: Company, Affin Source: Company, Affin 1M 3M 12M Absolute +5.5% +11.2% +21.8% Low holding cost of its Johor land Rel to KLCI +3.1% +12.2% +5.7% In 2011-2013, the group entered into separate joint venture agreements with Stock Data Khazanah National and Iskandar Investment Berhad to develop several pieces of land in Johor. These contiguous land banks have a combined land area of 1,770 Issued shares (m) 1,723.5 acres, located in Medini Zone F and Pendas, South of Medini Iskandar. The Mkt cap (RMm)/(US$m) 4,981.0/1,505.5 group is now among the largest land bank owners in Iskandar among listed- Avg daily vol – 6 mth (m) 0.8 52-wk range (RM) 2.36-3.61 developers, behind UEM Sunrise. While property market conditions in Iskandar Est free float 38% have weakened since 2H2013, we remain positive on the long-term profitability BV per share (RM) 3.10 of Sunway’s Iskandar project in view of its low land cost (RM14-25 psf) and P/BV (x) 0.93 strong partners in Khazanah and Iskandar Investment Berhad. Net cash/ (debt) (RMm) (4Q13) (1,276.4) ROE (FY14F) 8.2% Maintain ADD with an unchanged TP of RM3.15 Derivatives Warr 2016 (WP:RM0.71, SP:RM1.00) We value Sunway at RM3.15 based on a 30% discount to its RNAV. Maintain Shariah Compliant Yes ADD. We like Sunway for its integrated real estate business model, extensive experience in construction and established footprint in Singapore. That said, we Key Shareholders believe the stock lacks any near-term re-rating catalyst and the general weakness in high-end condominium may cap its share price performance. Key Tan Sri Jeffrey Cheah 53.7% risk is a sharper-than-expected slowdown in property market. GIC 8.7% Earnings & Valuation Summary Earnings & Valuation Revisions FYE Dec (RMm) 2012 2013 2014E 2015E 2016E Revenue 3,849.2 4,527.6 5,470.0 5,496.3 5,879.0 14E 15E 16E EBITDA 469.6 608.3 656.2 664.2 683.4 Prev EPS (sen) 27.3 28.0 31.5 Pretax profit 722.9 1,007.8 699.3 705.4 751.2 Curr EPS (sen) 27.3 28.0 31.5 Net profit 530.6 839.3 469.8 483.4 543.0
Chg (%) - - - EPS (sen) 41.1 55.7 27.3 28.0 31.5 Prev target price (RM) 3.15 PER (x) 7.0 5.2 10.6 10.3 9.2 Curr target price (RM) 3.15 Core net profit 350.6 482.7 469.8 483.4 543.0
Source: Bloomberg, Affin forecasts Core EPS (sen) 27.1 32.0 27.3 28.0 31.5 Core EPS chg (%) 7.2 18.0 (14.8) 2.9 12.3 Core PER (x) 10.7 9.0 10.6 10.3 9.2 DPS (sen) 6.0 10.0 10.0 10.0 12.0
Dividend Yield (%) 2.1 3.5 3.5 3.5 4.2 Isaac Chow EV/EBITDA (x) 11.4 10.3 10.1 9.6 9.1 (603) 2145 0412 Consensus profit - - 476.9 521.6 551.8 Affin/Consensus (x) - - 1.0 0.9 1.0 [email protected] Source: Company, Affin forecasts
Important disclosures at the end of report Page 19
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Sunway’s RNAV Description Property Development Stake Acres GDV NPV Surplus (RMm) (RMm) (RMm) Sunway South Quay 60% 42.2 3,297.0 213.2 127.9 Sunway Velocity 85% 17.9 2,859.0 133.2 113.2 Damansara 60% 15.4 1,691.0 183.2 109.9 Melawati 100% 2.0 43.0 2.7 2.7 Sunway Towers KL 100% 1.0 240.0 17.0 17.0 Taman Duta 60% 3.0 120.0 11.6 7.0 Casa Kiara 80% 3.0 210.0 18.8 15.0 Sunway Monterez 60% 5.4 43.7 3.9 2.3 Sunway Resort City 100% 14.9 660.0 53.0 53.0 Klang Valley (Others) 100% 220.0 618.4 51.7 51.7 Bkt Lenang, Johor 80% 64.0 700.0 60.7 48.5 Penang Grp 100% 150.0 1,768.0 99.9 99.9 Semenyih 70% 398.0 729.0 43.2 30.2 Ipoh 65% 441.0 1,048.0 65.1 42.3 Bangi 100% 3.0 59.0 3.7 3.7 Sg Long 80% 111.0 277.0 17.9 14.3 Medini 46% 691.0 12,000.0 300.5 138.2 Pedas 60% 1,079.0 18,000.0 412.3 247.4 Novena, Singapore 30% 1.7 2,137.0 199.1 59.7 Sembawang, Singapore 100% 0.8 75.0 1.7 1.7 Tianjin, China 60% 24.0 1,300.0 55.6 33.4 Opus, India 50% 23.8 702.0 53.0 26.5 MAK, India 60% 14.0 181.0 15.7 9.4 Australia 45% 48.4 378.1 23.5 10.6 Subtotal: 3,374 49,136 2,040 1,265.6
Other business RMm Construction @ 12x FY14 PER 1,125.0 Other business @ 10x FY14 PER 623.7 Subtotal: 1,748.7 Total (RMm) 3,014.3 Shareholders' fund @ Dec, 2013 (RMm) 5,334.9 Add: Warrants conversion (RMm) 724.0 RNAV (RMm) 9,073.2 Enlarged shares base (m) 2013.1 Fully diluted RNAV per share (RM) 4.51
Fair value based on 30% discount to RNAV 3.15 Source: Affin
Important disclosures at the end of report Page 20
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Sunway Berhad – FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Dec (RMm) 2012 2013 2014E 2015E 2016E FYE 31 Dec (RMm) 2012 2013 2014E 2015E 2016E Revenue 3,849 4,528 5,470 5,496 5,879 Growth Operating expenses (3,380) (3,919) (4,814) (4,832) (5,196) Revenue (%) 4.3 17.6 20.8 0.5 7.0 EBITDA 470 608 656 664 683 EBITDA (%) 2.8 29.5 7.9 1.2 2.9 Depreciation (90) (137) (144) (151) (158) Core net profit (%) 7.2 37.7 (2.7) 2.9 12.3 EBIT 380 471 512 513 525 Net int inc/(exp) (77) (48) (39) (53) (49) Profitability Associates' contribution 296 297 226 245 275 EBITDA margin (%) 12.2 13.4 12.0 12.1 11.6 Exceptional items 124 287 - - - PBT margin (%) 18.8 22.3 12.8 12.8 12.8 Pretax profit 723 1,008 699 705 751 Net profit margin (%) 13.8 18.5 8.6 8.8 9.2 Tax (125) (111) (118) (115) (119) Effective tax rate (%) 17.3 11.0 16.9 16.3 15.8 Minority interest (67) (58) (111) (107) (89) ROA (%) 6.4 8.5 4.1 4.0 4.3 Net profit 531 839 470 483 543 Core ROE (%) 10.7 10.9 8.6 8.3 8.9 Core Net Profit 351 483 470 483 543 ROCE (%) 6.6 6.5 6.2 6.1 6.1 Dividend payout ratio (%) 14.6 18.0 36.7 35.7 38.1 Balance Sheet Statement FYE 31 Dec (RMm) 2012 2013 2014E 2015E 2016E Liquidity Fixed assets 3,000 3,540 3,746 3,945 4,137 Current ratio (x) 1.6 1.2 1.3 1.3 1.3 Other long term assets 1,931 2,689 2,789 2,889 2,989 Op. cash flow (RMm) 386.1 1,093.6 (7.4) 688.7 533.0 Total non-curr assets 4,931 6,229 6,535 6,834 7,126 Free cashflow (RMm) (79.4) 435.7 (357.4) 338.7 183.0 Cash and equivalents 1,140 1,519 1,025 1,237 1,288 FCF/share (sen) (6.1) 28.9 (20.7) 19.7 10.6 Stocks 626 623 869 873 934 Debtors 1,400 1,403 1,695 1,703 1,821 Asset management Other current assets 648 1,339 1,785 1,594 1,594 Debtors turnover (days) 132.8 113.1 113.1 113.1 113.1 Total current assets 3,814 4,883 5,374 5,407 5,638 Stock turnover (days) 59.4 50.2 58.0 58.0 58.0 Creditors 1,605 2,154 2,633 2,646 2,843 Creditors turnover (days) 168.9 193.8 193.8 193.8 193.8 Short term borrowings 783 1,805 1,500 1,500 1,400 Other current liabilities 31 24 24 24 24 Capital structure Total current liab 2,419 3,983 4,157 4,170 4,267 Net gearing (%) 45.2 23.9 29.7 22.9 19.3 Long term borrowings 1,964 991 1,200 1,100 1,100 Interest cover (x) 6.1 12.6 16.8 12.5 13.9 Other long term liabilities 493 486 486 486 486 Total long term liab 2,458 1,477 1,686 1,586 1,586 Shareholders' Funds 3,558 5,335 5,638 5,949 6,285 Minority Interest 310 317 428 535 625 Quarterly Profit & Loss Cash Flow Statement FYE 31 Dec (RMm) 4Q121Q132Q133Q134Q13 FYE 31 Dec (RMm) 2012 2013 2014E 2015E 2016E Revenue 1,198.9 1,021.0 1,118.0 1,066.1 1,322.4 Profit before tax 723 1,008 699 705 751 Operating expenses (1,067) (912) (979) (927) (1,147) Depreciation & amortization 90 137 144 151 158 EBITDA 132.4 108.5 139.1 138.7 175.1 Working capital changes (573) (148) (506) 193 18 Depreciation (22.5) (22.5) (22.5) (22.5) (22.5) Associates' contribution (296) (297) (226) (245) (275) EBIT 109.9 86.1 116.6 116.2 152.6 Others 443 395 (118) (115) (119) Net int income/(expense) (16.7) (11.7) (12.6) (6.3) (17.6) Cashflow frm ops 386 1,094 (7) 689 533 Associates' contribution 99.3 47.9 48.9 49.4 91.6 Capex (465) (658) (350) (350) (350) Exceptional Items 123.8 0.3 59.6 (41.2) 328.0 Disposal/(purchases) 317 - - - - Pretax profit 316.3 122.5 212.5 118.2 554.6 Others (210) (247) 126 145 175 Tax (55.8) (26.3) (32.5) (16.6) (35.5) Cash flow frm inv't (358) (905) (224) (205) (175) Minority interest (41.2) (5.6) (9.7) (8.5) (33.9) Debt raised/(repaid) 401 49 (95) (100) (100) Net profit 219.3 90.6 170.3 93.1 485.2 Equity raised/(repaid) - 732 - - - Core net profit 114.1 90.3 110.7 124.4 157.5 Dividends paid (39) (344) (172) (172) (207) Others (116) (301) - - - Margins (%) Cash flow frm fin. 247 135 (268) (272) (307) EBITDA 11.0 10.6 12.4 13.0 13.2 PBT 26.4 12.0 19.0 11.1 41.9 Free Cash Flow (79) 436 (357) 339 183 Net profit 18.3 8.9 15.2 8.7 36.7 Source: Company, Affin forecasts
Important disclosures at the end of report Page 21
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Tropicana Unlocking value through development and land sales Sector: Property An ambitious new kid on the block Tropicana, formerly known as Dijaya Corp, has undergone several TRCB MK transformative exercises since late 2010 driven by its major shareholder Tan Sri RM1.44 @ 21 Mar 2014 Dato’ Danny Tan. Through an intensive transformation program, Tropicana has strengthened its management team, accumulated a sizeable land bank, rebranded its property products and amalgamated the major shareholder’s BUY (maintain) private and public property assets. To date, the group has a sizeable land bank of 1,340 acres with an effective GDV of RM57.6bn. Price Target: RM1.80 (↔) Effective land bank (1,340 acres) Effective GDV (RM57.6bn)
(RM) Klang 2.50 Pg Pg Klang Valley 4% 10% Valley 2.00 57% 45%
1.50
1.00
0.50
0.00 Mar-11 Mar-12 Mar-13 Mar-14 Johor 39% Price Performance Johor 45%
1M 3M 12M Source: Company, Affin Source: Company, Affin Absolute +13.4% +12.5% +0.3% Rel to KLCI +4.9% +13.6% -16.2% Unlocking value through development, land sales To fund the land bank acquisitions, the group has geared up substantially over Stock Data 2011-13. As at December 2013, the group’s net gearing ratio was 0.55x, excluding the outstanding payment for ongoing land acquisitions (pending Issued shares (m) 1,365.6 Mkt cap (RMm)/(US$m) 1,966.4/594.4 completion) estimated at over RM500m. To improve its gearing ratio, Tropicana Avg daily vol – 6 mth (m) 1.44 has embarked on an asset monetisation and de-gearing exercise. We are 52-wk range (RM) 1.19-2.20 generally positive on the progress - the group has disposed RM500m worth of Est free float 30% land bank in 2013 and it has recently signed a sale and purchase agreement with BV per share (RM) 2.32 P/BV (x) 0.62 Eco World to dispose a 309-acre piece of land in Canal City for RM470.7m. Net cash/ (debt) (RMm) (4Q13) (1,420.3) ROE (FY14F) 11.0% Maintain BUY, asset monetisation is the key re-rating catalyst Derivatives We maintain our BUY rating on Tropicana, valuing the group at a 50% discount Warr 2019 (WP:RM0.74, SP:RM1.00) to its RNAV. At its current valuation of 0.4x P/RNAV, we believe the market has Shariah Compliant No largely priced in the negatives (high net gearing, weak property market, high
concentration in integrated high rise project) but overlooked its positive attributes Key Shareholders (strategic land bank, good assets). We believe that timely execution of its de-
gearing initiatives will re-rate Tropicana share price in 2014. Key risks to our Tan Sri Dato’ Danny Tan 70.5% positive view are: (i) acquisition of sizeable land bank that will further stretch its balance sheet; (ii) a sharper-than-expected slowdown in the domestic property Earnings & Valuation Revisions market; (iii) execution risk; (iv) delays/ hiccups in its de-gearing exercise.
14E 15E 16E Earnings & Valuation Summary Prev EPS (sen) 24.5 13.7 17.9 FYE Dec (RMm) 2012 2013 2014E 2015E 2016E Curr EPS (sen) 24.5 13.7 17.9 Revenue 630.4 1475.5 1267.7 1266.01456.3 Chg (%) - - - EBITDA 143.5 304.6 510.8 319.4 387.4 Prev target price (RM) 1.80 Pretax profit 224.9 503.6 476.5 288.0 360.8 Curr target price (RM) 1.80 Net profit 171.1 362.3 339.2 196.6 256.4
EPS (sen) 32.5 35.2 24.5 13.7 17.9 Source: Bloomberg, Affin forecasts PER (x) 4.4 4.1 5.8 10.4 8.0 Core net profit 66.0 177.0 339.2 196.6 256.4 Core EPS (sen) 12.5 17.2 24.5 13.7 17.9 Core EPS chg (%) -9.3 37.3 42.3 -44.1 30.4 Core PER (x) 11.4 8.3 5.8 10.4 8.0 DPS (sen) 4.8 3.4 7.0 6.5 7.5
Isaac Chow Dividend Yield (%) 3.4 2.4 4.9 4.5 5.2 (603) 2145 0412 EV/EBITDA (x) 16.5 9.5 7.0 11.2 9.0 [email protected] Consensus profit - - 185.3 200.7 226.5 Affin/Consensus (x) - - 1.8 1.0 1.1
Source: Company, Affin forecasts
Important disclosures at the end of report Page 22
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Tropicana’s RNAV Project Tenure Land Area Remaining Equity NPV (acre) GDV (RM m ) Interest (RMm) Central Tropicana Gardens Leasehold 18 2,043 70% 175 Tropicana Metropark Freehold 89 6,800 100% 377 Tropicana Heights Freehold 199 1,726 100% 139 W KL Hotel & Residences Freehold 1 1,150 100% 52 Tropicana Aman (Canal City) Leasehold 440 13,000 100% 508 Others (Klang Valley) Mixed 15 1,705 100% 143
Southern Tropicana Danga Bay Freehold 37 7,189 60% 217 Tropicana Danga Cove Freehold 227 12,007 50% 291 Tropicana City Centre Freehold 22 3,602 100% 129 Tropicana Danga Lagoon Mixed 62 2,500 100% 128 TDB Hotel & Residences Freehold 6 1,336 60% 49 Tropicana Gelang Patah Freehold 257 6,440 100% - Senibong Land Leasehold 60 3,670 70% -
Northern Penang World City Freehold 103 9,466 55% 315 Tropicana 218 MacAlister Freehold 2 314 100% 38
Subtotal 1,536 72,948 2,560
Unbilled sales 210
Investment properties Net BV Market Value Equity Surplus (RMm) (RMm) Interest (RMm) Tropicana City Mall and Office Tow er 503 509 100% 5
Total 2,775
Shareholders' fund (as at Dec 31, 2013) 2,570 Add: cash from w arrants conversion 154 Add: net gain from disposal of 309-acre Canal City land 170 Add: valuation surplus 2,775 RNAV (RMm) 5,669
Share outstanding (as at March 19, 2014) 1,366 Add: w arrants and RCULS conversions 205 Enlarged share base (m) 1,570
Fully diluted RNAV per share (RM) 3.61 Target price based on 50% discount to RNAV per share (RM) 1.80 Source: Affin
Important disclosures at the end of report Page 23
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Tropicana – FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Dec (RMm) 2012 2013 2014E 2015E 2016E FYE 31 Dec (RMm) 2012 2013 2014E 2015E 2016E Revenue 630.4 1475.5 1267.7 1266.0 1456.3 Grow th Operating expenses -486.9 -1170.9 -756.9 -946.5 -1069.0 Revenue (%) 68.0 134.1 -14.1 -0.1 15.0 EBITDA 143.5 304.6 510.8 319.4 387.4 EBITDA (%) 64.6 112.3 67.7 -37.5 21.3 Depreciation -15.3 -22.7 -15.5 -15.2 -14.9 Core net profit (%) 4.8 168.2 91.6 -42.0 30.4 EBIT 128.1 281.9 495.2 304.2 372.4 Net int income/(expense) -27.3 -68.9 -50.6 -47.3 -45.8 Profitability Associates' contribution 6.3 83.7 31.9 31.1 34.1 EBITDA margin (%) 22.8 20.6 40.3 25.2 26.6 Others 117.8 206.9 0.0 0.0 0.0 PBT margin (%) 35.7 34.1 37.6 22.7 24.8 Pretax profit 224.9 503.6 476.5 288.0 360.8 Net profit margin (%) 27.1 24.6 26.8 15.5 17.6 Tax -44.4 -125.3 -111.2 -64.2 -81.7 Effective tax rate (%) 19.7 24.9 23.3 22.3 22.6 Minority interest -9.5 -16.1 -26.2 -27.2 -22.7 ROA (%) 4.8 7.2 6.2 3.5 4.3 Net profit 171.1 362.3 339.2 196.6 256.4 Core ROE (%) 4.2 7.6 12.6 6.9 8.6 Core net profit 66.0 177.0 339.2 196.6 256.4 ROCE (%) 4.3 6.7 11.0 6.7 8.1 Dividend payout ratio (%) 14.8 9.6 28.6 47.5 42.0 Balance Sheet Statement FYE 31 Dec (RMm) 2012 2013 2014E 2015E 2016E Liquidity Fixed assets 3,287.4 3,244.4 3,477.2 3,578.6 3,538.1 Current ratio (x) 2.0 2.1 1.8 1.7 1.7 Other long term assets 187.2 323.3 355.3 386.3 420.4 Op. cash flow (RMm) -287.3 171.4 -168.6 226.9 130.9 Total non-current assets 3,474.6 3,567.7 3,832.4 3,964.9 3,958.5 Free cashflow (RMm) -557.0 51.0 -388.6 6.9 50.9 Cash and equivalents 210.8 497.2 123.2 139.8 185.9 FCF/share (sen) -70.2 4.6 -28.1 0.5 3.5 Stocks 31.1 67.1 47.7 59.6 67.4 Debtors 144.6 383.3 416.8 416.2 478.8 Asset management Other current assets 717.9 910.4 1,144.1 1,211.8 1,322.5 Debtors turnover (days) 83.7 94.8 120.0 120.0 120.0 Total current assets 1,104.4 1,858.0 1,731.8 1,827.4 2,054.6 Stock turnover (days) 23.3 20.9 23.0 23.0 23.0 Creditors 323.2 487.6 564.1 705.4 796.6 Creditors turnover (days) 242.3 152.0 272.0 272.0 272.0 Short term borrow ings 231.8 350.8 350.0 350.0 350.0 Other current liabilities 8.1 44.7 44.7 44.7 44.7 Capital structure Total current liabilities 563.1 883.1 958.8 1,100.1 1,191.3 Net gearing (%) 77.1 55.3 56.1 51.8 46.1 Long term borrow ings 1,596.5 1,566.8 1,350.0 1,300.0 1,250.0 Interest cover (x) 4.5 3.9 8.6 6.4 7.9 Other long term liabilities 193.1 241.8 253.0 259.4 267.6 Total long term liabilities 1,789.6 1,808.6 1,603.0 1,559.4 1,517.6 Shareholders' Funds 2,098.6 2,570.3 2,812.5 2,915.7 3,064.4 Quarterly Profit & Loss Minority interest 127.6 163.8 190.0 217.1 239.9 FYE 31 De c (RM m ) 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 Revenue 234.1 305.3 362.1 363.4 444.7 Cash Flow Statement Operating expenses -174.6 -223.4 -300.1 -290.8 -306.8 FYE 31 Dec (RMm) 2012 2013 2014E 2015E 2016E EBIT 59.581.962.072.6137.9 Pretax profit 224.9 503.6 476.5 288.0 360.8 Net int income/(expense) -12.7 -15.4 -13.6 -25.4 -14.4 Depreciation & amortisation 15.3 22.7 15.5 15.2 14.9 Associates' contribution 1.4 1.2 1.8 2.2 78.5 Working capital changes -327.8 -45.7 -159.7 65.6 -84.2 Exceptional Items 12.6 -0.9 12.1 0.0 123.1 Cash tax paid -37.0 -80.2 -100.0 -57.8 -73.5 Pretax profit 60.8 66.8 62.3 49.3 325.2 Others -162.8 -229.0 -401.0 -84.1 -87.1 Tax 1.0 -24.5 -15.6 -19.7 -65.4 Cashflow from operation -287.3 171.4 -168.6 226.9 130.9 Minority interest -1.6 1.5 -8.4 -5.9 -3.3 Capex -269.8 -120.4 -220.0 -220.0 -80.0 Net profit 60.2 43.8 38.3 23.7 256.5 Others -228.6 72.2 329.1 153.0 153.0 Core net profit 30.9 44.5 29.3 23.7 79.6 Cash flow from investing -498.3 -48.2 109.1 -67.0 73.0 Debt raised/(repaid) 560.3 72.6 -217.5 -50.0 -50.0 Margins (%) Dividends paid -10.4 -91.7 -97.0 -93.3 -107.7 EBIT 25.4% 26.8% 17.1% 20.0% 31.0% Others 309.2 154.9 0.0 0.0 0.0 PBT 26.0% 21.9% 17.2% 13.6% 73.1% Cash flow from financing 859.1 135.7 -314.5 -143.3 -157.7 Net profit 25.7% 14.4% 10.6% 6.5% 57.7%
Free Cash Flow -557.0 51.0 -388.6 6.9 50.9 Source: Company, Affin forecasts
Important disclosures at the end of report Page 24
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
UOA Well-managed group, but wrong product focus for now A focused high rise, integrated project developer Development UOA Development (“UOA”) is a property developer based in Kuala Lumpur with an integrated in-house development and construction department. The group Sector: Property was established by its Australian and Singaporean dual-listed parent group (UOA
UOAD MK Ltd) to undertake property development activities in Malaysia. Listed on Bursa Malaysia in June 2011, the group primarily focuses on the high rise and RM2.11 @ 21 Mar 2014 integrated development projects within Klang Valley. Its flagship project is an ongoing integrated development in Bangsar South comprising of office blocks, ADD (maintain) condominiums and a hotel. To date, UOA’s upcoming projects and land bank are all located within Klang Valley.
Price Target: RM2.22 (↔) Strong financial discipline - high profit margin, strong balance sheet UOA has a good earnings track record with superior operating profit margins of 40-45% in 2011-13. The superior profit margin is a collective result of its various positive attributes such as: (i) strong product planning, pricing and marketing capabilities; (ii) good project execution with timely delivery; (iii) in-house construction; (iv) stringent cost control; and (v) low land cost. Besides, the group also maintains a strong balance sheet and positive cash balance – UOA is in a net cash position of RM786.6m as at end-December 2013.
Primary focus in Klang Valley high rise, integrated development market Price Performance UOA plans to launch RM2bn worth of properties in 2014 comprising of boutique office towers and service apartments in several locations (Old Klang Road, 1M 3M 12M Sentul, Taman Desa, Jalan Ipoh and Kepong). In our view, the Klang Valley Absolute +7.1% +5.5% +13.2% service apartment segment is a competitive market due to an increasing number Rel to KLCI +5.6% +6.5% -3.6% of new launches by both established and upcoming developers and further
exacerbated by completion of new units launched in 2011-12. Elsewhere, the Stock Data demand for boutique office towers are, in our view, soft due to the subpar
Issued shares (m) 1,339.0 occupancy rate and high incoming supply of office space in Klang Valley. Mkt cap (RMm)/(US$m) 2,825.4/854.0 Avg daily vol – 6 mth (m) 1.0 Maintain ADD with an unchanged TP of RM2.22 52-wk range (RM) 1.79-2.75 While we are cautious on UOA’s 2014 property sales outlook due to the stiff Est free float 32% competition and weak market sentiment, we opine that the group can well BV per share (RM) 1.82 P/BV (x) 1.20 weather the cyclical slowdown. Maintain ADD with an unchanged TP of RM2.22 Net cash/ (debt) (RMm) (4Q13) 786.6 based on a 30% discount to its RNAV. We continue to like UOA for its strong ROE (FY14F) 12.9% management, good product branding, undemanding valuation (0.6x P/RNAV, 8x Derivatives Nil. 2015E PER) and strong net cash position. Key risks to our positive view on UOA Shariah Compliant Yes are: (i) a sharper-than-expected slowdown in the Klang Valley property market;
Key Shareholders (ii) lower-than-expected new property sales; and (iii) sharper-than-expected profit margin erosion.
UOA Ltd 68.2%
Earnings & Valuation Revisions Earnings & Valuation Summary
FYE Dec (RMm) 2012 2013 2014E 2015E 2016E 14E 15E 16E Revenue 799.2 1,245.5 1,216.1 1,248.7 1,262.9 Prev EPS (sen) 24.3 24.8 25.7 Curr EPS (sen) 24.3 24.8 25.7 EBITDA 321.8 501.3 453.8 466.3 418.6
Chg (%) - - - Pretax profit 414.2 577.9 471.6 488.5 463.2 Prev target price (RM) 2.22 Net profit 301.3 362.8 326.0 332.9 344.1 Curr target price (RM) 2.22 EPS (sen) 23.7 27.1 24.3 24.8 25.7 PER (x) 8.9 7.8 8.7 8.5 8.2 Source: Bloomberg, Affin forecasts Core net profit 215.9 346.1 326.0 332.9 344.1
Core EPS (sen) 17.0 25.8 24.3 24.8 25.7 Core EPS chg (%) 4.9 52.1 (5.8) 2.1 3.4
Core PER (x) 12.4 8.2 8.7 8.5 8.2
DPS (sen) 12.0 13.0 14.0 15.0 15.0
Dividend Yield (%) 5.7 6.2 6.6 7.1 7.1
Isaac Chow EV/EBITDA (x) 7.2 4.1 5.3 5.1 5.6 (603) 2145 0412 Consensus profit - - 359.8 368.8 397.5 Affin/Consensus (x) - - 0.9 0.9 0.9 [email protected] Source: Company, Affin forecasts
Important disclosures at the end of report Page 25
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
UOA’s RNAV Projects Type Location Est. GDV Developm't NPV Stake Surplus (RMm) Period (RMm) (%) (RMm) Under / Upcoming Development Le Yuan Residential Sri Petaling 450 2011 - 2013 50 100% 50 Vertical Office Suites Commercial Bangsar South 700 2012 - 2015 133 100% 133 Desa III Residential Taman Desa 14 2013 - 2014 0 70% 0 Scenaria @ North Kiara Hills Residential Segambut 600 2012 - 2015 89 60% 54 Desa Green Residential Taman Desa 600 2012 - 2016 152 85% 129 Kencana Square Commercial Glenmarie 1,500 2012 - 2017 282 39% 110 Desa II (Commercial) Commercial Taman Desa 332 2012 - 2015 83 85% 71 South View Residence Commercial Bangsar South 600 2013 - 2016 126 100% 126 South Bank Residential Old Klang Rd 500 2013 - 2016 89 60% 53
Future development - over 3 years Bangsar South (Commercial) Commercial Bangsar South 3,000 TBD 353 100% 353 Bangsar South (Residential) Residential Bangsar South 1,977 TBD 243 100% 243 Kerinchi (Commercial) Commercial Bangsar South 800 TBD 85 100% 85 Jalan Ipoh Residential Jalan Ipoh 1,750 TBD 214 100% 214 Kepong V Residential Kepong 1,500 TBD 190 100% 190
Total surplus 1,810.0
Shareholders' fund @ 31 Dec 2013 2,444.8 RNAV 4,254.9 Shares base (m) 1,339.8
RNAV per share (RM) 3.18 Target Price based on a 30% discount to RNAV 2.22 Source: Affin
Important disclosures at the end of report Page 26
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
UOA Development – FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Dec (RMm ) 2012 2013 2014E 2015E 2016E FYE 31 Dec (RMm) 2012 2013 2014E 2015E 2016E Revenue 799.2 1245.5 1216.1 1248.7 1262.9 Grow th Operating expenses -477.4 -744.2 -762.3 -782.5 -844.2 Revenue (%) 30.2 55.9 -2.4 2.7 1.1 EBITDA 321.8 501.3 453.8 466.3 418.6 EBITDA (%) 12.6 55.8 -9.5 2.8 -10.2 Depreciation -8.5 -9.9 -10.9 -11.5 -12.0 Core net profit (%) 11.5 60.3 -5.8 2.1 3.4 EBIT 313.3 491.4 442.9 454.8 406.6 Net int income/(expense) 3.9 15.4 18.5 7.4 7.0 Profitability Associates' contribution 0.7 6.5 10.3 26.3 49.6 EBITDA margin (%) 40.3 40.2 37.3 37.3 33.1 Others 96.3 64.7 0.0 0.0 0.0 PBT margin (%) 51.8 46.4 38.8 39.1 36.7 Pretax profit 414.2 577.9 471.6 488.5 463.2 Net profit margin (%) 37.7 29.1 26.8 26.7 27.2 Tax -88.6 -172.2 -115.3 -115.5 -103.4 Effective tax rate (%) 21.4 29.8 25.0 25.0 25.0 Minority interest -24.3 -42.9 -30.3 -40.0 -15.7 ROA (%) 12.8 12.8 9.9 9.3 9.1 Net profit 301.3 362.8 326.0 332.9 344.1 Core ROE (%) 11.1 15.3 12.9 12.5 12.2 Core net profit 215.9 346.1 326.0 332.9 344.1 ROCE (%) 16.0 21.5 17.5 16.9 14.4 Dividend payout ratio (%) 50.6 48.0 57.5 60.4 58.4 Balance Sheet Statement FYE 31 Dec (RMm ) 2012 2013 2014E 2015E 2016E Liquidity Fixed assets 62.0 47.9 42.0 35.5 28.5 Current ratio (x) 5.6 4.7 3.7 3.8 3.6 Other long term assets 655.7 915.4 1,035.7 1,171.9 1,331.5 Op. cash flow (RMm) 289.0 255.7 -86.2 298.1 336.5 Total non-current assets 717.8 963.3 1,077.7 1,207.5 1,360.0 Free cashflow (RMm) 40.2 38.0 -201.2 183.1 221.5 Cash and equivalents 379.2 806.1 454.9 464.1 498.6 FCF/share (sen) 3.2 2.8 -15.0 13.7 16.5 Stocks 378.3 146.1 599.7 615.8 622.8 Debtors 636.2 426.1 499.8 513.2 519.0 Asset management Other current assets 473.9 757.7 834.9 857.3 866.9 Debtors turnover (days) 290.6 124.9 150.0 150.0 150.0 Total current assets 1,867.6 2,136.0 2,389.3 2,450.4 2,507.3 Stock turnover (days) 388.8 264.3 430.0 430.0 430.0 Creditors 319.2 424.6 610.2 615.7 666.3 Creditors turnover (days) 279.2 233.8 300.0 300.0 300.0 Short term borrow ings 10.0 2.1 2.1 2.1 2.1 Other current liabilities 4.0 29.8 29.8 29.8 29.8 Capital structure Total current liabilities 333.3 456.5 642.0 647.6 698.2 Net gearing (%) -17.2 -32.3 -16.9 -16.4 -16.7 Long term borrow ings 9.6 13.4 13.4 13.4 13.4 Interest cover (x) 76.1 96.5 79.4 74.2 60.5 Other long term liabilities 93.3 87.0 87.0 87.0 87.0 Total long term liabilities 103.0 100.3 100.3 100.3 100.3 Shareholders' Funds 2,090.7 2,444.8 2,596.6 2,741.9 2,885.1 Quarterly Profit & Loss Minority interest 58.4 97.7 128.0 168.0 183.7 FYE 31 Dec (RMm) 4QFY121QFY132QFY133QFY134QFY13 Revenue 171.3 381.9 295.6 216.0 352.1 Cash Flow Statement Operating expenses -117.3 -215.3 -173.1 -146.9 -208.9 FYE 31 Dec (RMm ) 2012 2013 2014E 2015E 2016E EBIT 51.8 164.2 120.1 66.6 140.5 Pretax profit 414.2 577.9 471.6 488.5 463.2 Net int income/(expense) 0.9 2.4 3.7 4.5 4.7 Depreciation & amortisation 8.5 9.9 10.9 11.5 12.0 Associates' contribution 0.6 1.1 1.6 2.9 0.9 Working capital changes 75.8 -39.1 -418.9 -46.3 28.2 Exceptional Items 43.3 4.2 0.0 37.2 23.3 Cash tax paid -109.2 -163.9 -115.3 -115.5 -103.4 Pretax profit 96.6 171.9 125.3 111.2 169.5 Others -100.4 -129.1 -34.4 -39.9 -63.5 Tax -18.9 -35.4 -30.8 -29.2 -76.9 Cashflow from operation 289.0 255.7 -86.2 298.1 336.5 Minority interest -6.2 -17.4 -16.0 -5.4 -4.1 Capex -248.8 -217.7 -115.0 -115.0 -115.0 Net profit 71.5 119.1 78.6 76.5 88.6 Others 52.1 410.4 24.2 13.6 13.9 Core net profit 33.7 114.9 78.6 47.3 105.2 Cash flow from investing -196.7 192.7 -90.8 -101.4 -101.1 Debt raised/(repaid) -12.5 -4.2 0.0 0.0 0.0 Margins (%) Dividends paid -119.6 -13.2 -174.2 -187.6 -201.0 EBIT 30% 43% 41% 31% 40% Others 131.3 -4.4 0.0 0.0 0.0 PBT 56% 45% 42% 51% 48% Cash flow from financing -0.7 -21.9 -174.2 -187.6 -201.0 Net profit 42% 31% 27% 35% 25% Free Cash Flow 40.2 38.0 -201.2 183.1 221.5 Source: Company, Affin forecasts
Important disclosures at the end of report Page 27
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Disclaimer This publication is prepared by Affin Investment Bank Berhad (“Affin”) and reviewed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates (collectively, “Daiwa”), and is distributed and/or originated from outside Malaysia by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. The role of Daiwa Securities Group Inc. and/or its non-U.S. affiliates in connection with this publication is solely limited to the review and distribution of this publication ; and Daiwa Securities Group Inc. and/or its non-U.S. affiliates are not involved in the preparation of this publication in any other way. This research is for Daiwa clients only and the publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Other than disclosures relating to Daiwa, this research is based on current public information that Affin and Daiwa consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such.
The analysts named in this report may have from time to time discussed with clients, including Daiwa’s salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks, which rating reflects a stock's return potential relative to its coverage group as described herein.
Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction where such an offer or solicitation would be illegal nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Daiwa Securities Group Inc. and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents in relation to such investments.
All research reports are disseminated and available to our clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients or available to third-party aggregators, nor is Daiwa responsible for the redistribution of our research by third party aggregators.
Daiwa Securities Group Inc., its subsidiaries and affiliates, and its or their respective directors, officers and employees, from time to time may have trades as principals, or may have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Japan Disclosure of Interest of Daiwa Securities Group Inc. Investment Banking Relationship Within the preceding 12 months, The subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Blackgold International Holdings Ltd (BGG AU); Tosei Corporation (8923 JP); Modern Land (China) Co. Ltd (1107 HK); China Everbright Bank Company Limited (6818 HK); econtext Asia Ltd (1390 HK).
*Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司), Daiwa Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd. This research may only be distributed in Japan to “qualified institutional investors”, as defined in the Financial Instruments and Exchange Act (Article 2 (3) (i)), as amended from time to time. Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. DHK market making DHK may from time to time make a market in securities covered by this research. Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research. Australia This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. India This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of or reliance on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and analysis, in evaluating the information in this document. The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to, or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited. Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research.
Important disclosures at the end of report Page 28
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively. United Kingdom This research report is produced by Daiwa Capital Markets Europe Limited and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and/or its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and/or its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.
This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.
Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory . Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Germany This document has been approved by Daiwa Capital Markets Europe Limited and is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany. Bahrain This research material is issued/compiled by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113
This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent.
United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000).
Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Investment Banking Relationships For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
DCMA Market Making For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.
Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.
Important disclosures at the end of report Page 29
KDN: PP 10251/07/2013 (032736)
SECTOR UPDATE
21 March 2014
For stocks and sectors in Malaysia covered by Affin, the following rating system is in effect: Stocks: BUY: Total return is expected to exceed +15% over a 12-month period TRADING BUY (TR BUY): Total return is expected to exceed +15% over a 3-month period due to short-term positive developments, but fundamentals are not strong enough to warrant a Buy call. This is to cater to investors who are willing to take on greater risk ADD: Total return is expected to be between 0% and +15% over a 12-month period REDUCE: Total return is expected to be between 0% and -15% over a 12-month period TRADING SELL (TR SELL): Total return is expected to exceed -15% over a 3-month period due to short-term negative development, but the fundamentals are strong enough to avoid a Sell call. This is to cater to investors who are willing to take on greater risk SELL: Total return is expected to be below -15% over a 12-month period NOT RATED: Affin Investment Bank does not provide research coverage or a rating for this company. The report is provided for information purposes only Sectors: OVERWEIGHT: Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL: Industry, as defined by the analyst’s coverage universe, is expected to perform in line with the KLCI benchmark over the next 12 months UNDERWEIGHT: Industry, as defined by the analyst’s coverage universe is expected to underperform the KLCI benchmark over the next 12 months
Conflict of Interest Disclosure re Affin
Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Relevant Relationships Affin may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.
Affin market making Affin may from time to time make a market in securities covered by this research. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)
If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.
When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.
Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Important disclosures at the end of report Page 30