L&G set to unlock its land value via more launches

Land & General Bhd (Nov 3, 22.5 sen)

Initiate buy call and a target price (TP) of 28 sen: Long synonymous with the successful development of its 1,200-acre (485.6ha) Bandar Sri Damansara in the 1990s, Land & General Bhd (L&G) has diversified beyond the affluent township into other areas in the Klang Valley after its recent acquisition of 445 acres (180ha) of land worth a gross development value (GDV) of RM4 billion from its major shareholder, Mayland Parkview Sdn Bhd.

We believe the worst is over as management has lined up a strong pipeline of projects, in anticipation of a better property market in 2018.

We are the sole broker covering L&G. While the market may be sceptical of the company due to the perceived conflict of interest with its major shareholder that is also involved in property development, we draw comfort from the fact that the bulk of Mayland’s prime land bank has been injected into L&G. Also, Mayland has been actively buying back L&G shares recently which are at a multi-year low.

We expect an imminent turnaround, projecting its core earnings to grow exponentially at a compound annual growth rate (CAGR) of 226% over the financial year 2018 (FY18) to FY20 period due to its small base. The redevelopment of its 36-acre (14.6ha) Sri Damansara clubhouse land is set to fetch lucrative returns given its low land cost at RM2.40 per sq ft (psf) which is only a tiny fraction of its market price of above RM300psf. This RM1 billion transit-oriented development with close proximity to MRT Line 2 could be launched by end-2018.

We initiate our coverage with a “buy” call and a 28 sen TP, based on a 65% discount to our fully-diluted revalued net asset value (RNAV). It is trading at an unjustifiably steep discount of 73% to its RNAV, giving a decent dividend yield of 4.5%.

With a net cash position of RM230 million representing about 35% of its market capitalisation, L&G is set to unlock its deep land value via more launches.

The key risk to our view is property market sentiments. L&G has a ready pipeline to grow its property sales, but the timing of the launches may be affected should market sentiments remain depressed. — AllianceDBS Research, Nov 2

This article first appeared in The Edge Financial Daily, on Nov 6, 2017.

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