The Star, 29 April 2014 - A&M Realty benefits from spill over demand of Tropicana Aman

The Star, 29 April 2014

CIMB Research visited KLIA2 and the adjacent Gateway@KLIA2 shopping complex last Friday. Some 80 institutional investors and sell-side analysts made the 33-minute trip via KLIA Ekspres for the first viewing of KLIA2 for the investment community, taking the opportunity to survey the terminal, apron, taxiway, runway and retail offerings at the soon-to-be-opened facility.

The research house said KLIA2 was an impressive terminal with comfort levels far exceeding that of the Low-Cost Carrier Terminal (LCCT), giving the low-cost carriers (LCCs) a better chance of luring business travel traffic and Malaysia Airports Holdings Bhd (MAHB) the opportunity to boost retail income.

CIMB said it maintained its “neutral” rating for the sector and “add” call and discounted cash flow-based target price of RM9.35 for MAHB, its top pick. The re-rating catalysts for MAHB include higher retail income from KLIA2 and the potential tariff equalisation with the main terminal building (MTB).

The research house said the comfort levels at KLIA2 fell slightly short of the MTB’s but appropriately so as it was an LCC-focused terminal, with international passenger service charges (PSC) that were only 49% of MTB’s.

It said KLIA2 was miles better than the existing LCCT, offering aerobridges, travelators and a wider range of food and beverages and retail outlets.

It said while there were still renovation and minor repair works ongoing, this was unlikely to jeopardise the terminal’s opening on May 2.

CIMB also said a tour of the airside (apron, taxiway, runway) did not spot any cracks or depressions, although there were some patched surfaces on the apron and taxiway.

CIMB maintained that having the terminal physically complete and operationally ready were two separate matters and that KLIA2’s operational readiness and airport transfer testing period of two months was shorter than the usual six months conducted at other new airports, so hiccups in the early weeks after the opening may be possible.

However, it added that KLIA2 was a major catalyst for MAHB due to better retail opportunities and a potential narrowing in PSC tariffs between KLIA2 and MTB and that earnings could rise by 49% if full tariff equalisation materialised.

AXIATA GROUP BHD By PublicInvest Research
Neutral (maintained)
Target price: RM6.92

AXIATA Group’s Indonesian unit PT XL Axiata announced its preliminary first quarter 2014 results on a stand-alone basis (before consolidating PT Axis Telekom Indonesia) with gross revenue of 5.5 trillion rupiah and net profit of 504 billion rupiah mainly due to forex gain from a stronger rupiah in the first quarter.

XL will only announce its consolidated first quarter 2014 results in May with further operational details incorporating the impact from the Axis acquisition.

PublicInvest said while XL’s stand-alone first quarter results were encouraging despite the typically low seasonal effect, it needed to caution on the potential adverse effect of consolidation of loss-making Axis and acquisition-related costs in XL’s finalised first quarter results.

XL borrowed US$500mil from its shareholders (i.e Axiata Group) and US$365mil from a consortium of banks (UOB, Bank of Tokyo-Mitsubishi and DBS) to finance the US$865mil acquisition.

The merged entity has a combined subscriber base of more than 77 million subscribers (around 24% of total mobile market), solidifying its No. 2 position behind Indonesian market leader Telkomsel.

It said the acquisition was essentially a spectrum purchase deal which would enable the spectrum-starved XL to expand more efficiently and to better compete with Indosat and Telkomsel.

PublicInvest maintained its “neutral” call on Axiata with an unchanged target price of RM6.92 based on sum-of-parts valuation. It added that the consolidation of loss-making PT Axis and integration issues may weigh on XL’s performance over the next 12 to18 months.

Buy (initiate coverage)

Target price: RM2.12

JF APEX has initiated coverage on A&M Realty with a target price of RM2.12, based on 30% discount to its revised net asset value (RNAV) of RM3.03. Its target price implies 8.2 times 2015 forecast price-earnings ratio (PER) which is below the historical mean PER of small-cap property counters of 9.5 times and its mean PER of 12 times.

The research house viewed A&M as a deeply undervalued property developer as its major landbank in Carey Island was now worth between RM10 and RM15 per sq ft against a book value of less than RM1 per sq ft.

It said the under-researched counter shall deserve a re-rating given its ambitious plan ahead in Carey Island to unlock its massive land value.

The research house said the group’s key property projects in Carey Island and Sungai Buloh would boost the group’s earnings significantly from financial year ending Dec 31, 2015 forecast onwards.

JF Apex said A&M was unlocking the value of its massive landbank of 1,938 acres at Carey Island by developing it into an integrated township, named Amverton Cove with a massive gross development value (GDV) of RM10bil with planned launches of RM738mil (circa 438 acres) from 2014 to2018.

It added Amverton Cove township comprised a golf resort, commercial and residential properties, of which the residential segment was targeted to be launched from 2014 to 2018.

The maiden launch with GDV of RM60mil will have 30 units of homesteads, priced between RM1mil and RM2mil per unit, which have received overwhelming response with 20 units being booked during its preview.

JF Apex said it was positive on the inclusion of two phases of serviced apartments in Amverton Cove’s master plan that will be priced RM500 to RM600 per sq ft with various built-up sizes of 500 sq ft, 700 sq ft and 900 sq ft as the affordable pricing range could increase catchment in Amverton Cove and pave the way for its success.

The research house said the better access to Carey Island would lure property buyers amid rising demand for landed properties in the outskirts of Greater KL especially benefiting from the spillover demand from the booming township in Canal City, Kota Kemuning (Bandar Rimbayu by IJM Land, Tropicana Aman by Tropicana Corp, recent land purchase by Ecoworld).

Meanwhile, JF Apex said A&M had joined the property fray in Rubber Research Institute of Malaysia land in Sungai Buloh by acquiring 145 acres in January.

Summing up the property projects in the pipeline from 2014 to 2018, JF Apex said the total GDV of RM1.9bil would well support A&M’s earnings growth going forward.

It said the group’s unbilled sales currently stood at RM43mil and JF Apex expected the group to chalk up new property sales of RM115mil and RM502mil in 2014 and 2015 respectively in light of its project launches with GDV of RM164mil in 2014 and RM670mil in 2015, which was expected to translate into commendable bottomline growth of 185% year-on-year in 2015 forecast.