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June 2010: You win some, you lose some
• Market rebound but not out of the woods yet
The KL Property Index gained 3.0% in June in line with recovery in the broad market though market trend lower again over the past 2 weeks. With the exception of Sunrise, all stocks under coverage posted gains in June with SP Setia gaining 8.3% on the back of a strong set of 2QFY10 results. Property sales of RM1.4bn have been achieved for the 7MFY10 period and we expect the property sector bellwether to achieve its RM2bn sales target for FY10 with ease. On major shareholding changes, June saw net accumulation in SP Setia, Sunrise and YNH Property.
• More positive news flow but also some negative ones
There continued to be news flow on acquisitions by developers in June as Paramount expanded into Cyberjaya, KSL Holdings acquired a 0.84- acre land in U-Thant area, MRCB reportedly poised to acquire land near the Petronas Twin Towers, Kumpulan Hartanah Selangor also rumoured to acquire a 9.3-acre land in Section 14, PJ, Axis REIT acquired another two industrial buildings, Sunway Holdings entered into MoU to develop project in Sri Lanka, Naim Holdings entered into MoU with Chinese parties, and IGB acquired two hotels in New York City.
Having said that, there was also disappointment in June as certain deals failed to materialise for various reasons. Some notable ones include IJM Land and IGB terminated a JV project in Melawati, LTAT not having a role to play in Sungei Besi RMAF airbase redevelopment, Berjaya Land aborted its project in Jeju Island, and Bolton terminated its land acquisition along Jalan Peel.
Besides the above, we also noted several asset disposals i.e. IJM Land disposal of Aeon Melaka, another land disposal by MK Land, and Gula Perak sold two hotels. Other notable news flow in June include Multi-Purpose will soon be entering into JV with listed property developers to
embark on property projects.
• Maintain OVERWEIGHT
We remain bullish on the residential sub-segment of the property sector, as we believe investors’ concern on the impact of interest rate hike has been overblown. We hold the view that interest rate hike will be gradual and minimal. Further to that, property sales is driven more by sentiment, which remains buoyant, rather than interest rate alone. We like the residential sub-segment on expectation of higher sales in CY2010 amid still low interest rate and improving sentiments. We like mid-cap property stocks such as Sunway City and Sunrise due to more compelling valuations. We also like Mah Sing among non-rated property stocks.
Market snapshot
The KL Property Index gained 3.0% in June in line with recovery in the broad market though market trend lower again over the past 2 weeks. With the exception of Sunrise, all stocks under coverage posted gains in June with SP Setia gaining 8.3% on the back of a strong set of 2QFY10 results. Property sales of RM1.4bn have been achieved for the 7MFY10 period and we expect the property sector bellwether to achieve its RM2bn sales target for FY10 with ease.
On major shareholding changes, June saw net accumulation in SP Setia, Sunrise and YNH Property. Employees Provident Fund (EPF) and Permodalan Nasional Bhd added 3.9m and 1.4m shares respectively in SP Setia while Skim Amanah Saham Bumiputra sold 1.1m shares. Datuk Tong Kooi Ong and EPF added 0.3m and 0.8m shares respectively in Sunrise while Dato' Dr. Yu Kuan Chon and Aberdeen Asset Management both added 0.6m and 1.5m shares respectively in YNH Property.
Acquisitions news flows
Developers again were bullish on the near term prospect of the property market judging by the number of acquisition news flow in June.
• MRCB, which has been widely expected to acquire more landbank in KL following its rights issue, may close in on a deal soon costing as much as RM170m, according to media sources. Its CEO Mohamed Razeek Hussain has been quoted that a piece of land measuring 0.45ha to 0.9ha, located a stone's throw away from the Petronas twin towers has been identified.
• Paramount became the latest developer to expand to Cyberjaya as It has acquired a 50.01 acres land from Cyberview and Setia Haruman for RM78.4m cash which will be developed into a RM530m residential project. Other developers which have recently expanded into Cyberjaya include Mah Sing and Glomac. Both developers have done well judging by encouraging take-up of recent property launches.
• Axis REIT acquired two industrial buildings in the Klang Valley for RM134m cash. It also plans to undertake a placement of up to 68.8m new units, representing about 22.4% of the existing units in circulation, at a price to be determined later. We view these acquisitions positively given pre-financing net yields of between 8.1% and 9.5%.
• KSL Holdings acquired a 0.84-acre land in U Thant area, Kuala Lumpur for RM25.4m, about RM700 psf which will be developed into a 10-storey condominium with GDV of RM100-110m.
• State-controlled Kumpulan Hartanah Selangor is reportedly finalising the purchase of a 9.3 acre plot in Section 14, Petaling Jaya near the Asia Jaya LRT station and opposite the Armada Hotel which will be developed into a high-end mixed development with a potential GDV of nearly RM1bn.
• Sunway Holdings, a sister company of Sunway City, has entered into a memorandum of understanding with Dasa Tourist Complex (Private) Ltd to explore the possibility of forming a joint-venture (JV) company to construct and develop a 34-storey building comprising 71 commercial units and 176 residential units on a piece of land in Colombo city in Sri Lanka which has a GDV of US$78m (RM250m).
• Naim Holdings signed a memorandum of understanding (MoU) with several parties in China and Sarawak to develop Panyu-Miri Smart Cities (PMSC). The parties Naim Holdings entered into the MoU with are Miri City Council in Sarawak; Guangzhou Panyu Economy and Trade Promotion Bureau of Guangzhou; and Institute of Digital Guangdong (IDG) from China.
• IGB Corp, through its associate company St Giles Hotels, has bought two hotels in New York City for US$78m (RM2.55m) from Starwood Hotels & Resorts Worldwide Inc. The hotels, located in midtown Manhattan, were previously operated by Starwood under the W brand. Following the acquisitions, the hotels have now been rebranded as St Giles Hotel New York - The Court and The Tuscany Hotels.
Termination of deals
Amid all the positive news flows, there were several bad news last month involving the termination of land deals and joint ventures.
• IJM Land and IGB announced the termination of a joint venture to develop a project in Melawati. We understand this was due to much delay in launching the project following residents’ protests over the development. Nevertheless, we expect no material impact on earnings as this project has generally not been accounted for by analysts.
• According to media report, LTAT will no longer have a role in the development of RMAF airbase in Sungai Besi. Instead, it will be the lead developer in the redevelopment of the 245-acre Batu Cantonment army base in Jalan Ipoh. LTAT’s unit Boustead Holdings has also been reported to have a role to play in the said development.
• Berjaya Land has aborted its proposed US$200m (RM640m) international themed village project on a 145-acre land in Jeju Island, Korea after the memorandum of understanding with its JV partner lapsed.
• Bolton has terminated the proposal to acquire a 5.5-acre parcel of land in Kuala Lumpur for RM39m after the vendor terminated the deal which Bolton alleges is in breach of the latter’s obligation. Initially inked in March 2010, the land deal would have seen Bolton developing a RM280m serviced apartment project on the site which is located within the commercial and residential zone of Taman Maluri and enjoy excellent view frontage of Jalan Peel.
Other corporate news
• Asia Pacific Land (AP Land) is partnering HELP International Corp Bhd in a 50:50 joint venture by identifying education business opportunities worldwide, including in Malaysia and China.
• IJM Land has realised its investment in its retail property Aeon Bandaraya Melaka after agreeing to sell the property to ADF Tiger III Ltd for RM66.3m cash which will result in a RM64m gain.
• MK Land Holdings sold 33.28 acres of leasehold lands for a sum of RM50.7m to Pembinaan Tegas Megah Sdn Bhd. The land comprises two leasehold parcels located in the Ulu Kelang region. The first measures 31.96 acres, which has a total consideration of RM48.7m, and the second measures 1.32 acres, and has a total consideration of RM2m.
• Gula Perak entered into a sales & purchase agreement to sell The Dynasty Hotel in Kuala Lumpur, and The Empress in Sepang, Selangor for a sum of RM193.9m to Time Glory Investment Ltd to repay part of the expired Redeemable Secured Notes 2003/2008, which totalled over RM287m.
• Multi-Purpose Holdings will be announcing its joint venture (JV) with a public-listed developer in the next several weeks to mark its entry into the property development sector which may involve its RM3bn iconic integrated mixed development project at the junction of Jalan Sultan Ismail and Jalan Imbi near Park Royal Hotel, which is currently in the planning and designing stage. The 2.4ha will have a retail podium, a 50-storey luxury condominium, a 35-storey four-star hotel and 30-storey office tower.
• Tradewinds Corp which is undertaking the RM450m refurbishment of the 29-year-old Menara Tun Razak in Jalan Raja Laut, will construct a 40-storey office building, next to the Menara Tun Razak, later this year.
Stocks valuation and recommendation
We remain bullish on the residential sub-segment of the property sector, as we believe investors’ concern on the impact of interest rate hike has been overblown. We hold the view that interest rate hike will be gradual and minimal. Further to that, property sales is driven more by sentiment, which remains buoyant, rather than interest rate alone. We like the residential sub-segment on expectation of higher sales in CY2010 amid still low interest rate and improving sentiments. We like mid-cap property stocks such as Sunway City and Sunrise due to more compelling valuations. We also like Mah Sing among non-rated property stocks.
• Market rebound but not out of the woods yet
The KL Property Index gained 3.0% in June in line with recovery in the broad market though market trend lower again over the past 2 weeks. With the exception of Sunrise, all stocks under coverage posted gains in June with SP Setia gaining 8.3% on the back of a strong set of 2QFY10 results. Property sales of RM1.4bn have been achieved for the 7MFY10 period and we expect the property sector bellwether to achieve its RM2bn sales target for FY10 with ease. On major shareholding changes, June saw net accumulation in SP Setia, Sunrise and YNH Property.
• More positive news flow but also some negative ones
There continued to be news flow on acquisitions by developers in June as Paramount expanded into Cyberjaya, KSL Holdings acquired a 0.84- acre land in U-Thant area, MRCB reportedly poised to acquire land near the Petronas Twin Towers, Kumpulan Hartanah Selangor also rumoured to acquire a 9.3-acre land in Section 14, PJ, Axis REIT acquired another two industrial buildings, Sunway Holdings entered into MoU to develop project in Sri Lanka, Naim Holdings entered into MoU with Chinese parties, and IGB acquired two hotels in New York City.
Having said that, there was also disappointment in June as certain deals failed to materialise for various reasons. Some notable ones include IJM Land and IGB terminated a JV project in Melawati, LTAT not having a role to play in Sungei Besi RMAF airbase redevelopment, Berjaya Land aborted its project in Jeju Island, and Bolton terminated its land acquisition along Jalan Peel.
Besides the above, we also noted several asset disposals i.e. IJM Land disposal of Aeon Melaka, another land disposal by MK Land, and Gula Perak sold two hotels. Other notable news flow in June include Multi-Purpose will soon be entering into JV with listed property developers to
embark on property projects.
• Maintain OVERWEIGHT
We remain bullish on the residential sub-segment of the property sector, as we believe investors’ concern on the impact of interest rate hike has been overblown. We hold the view that interest rate hike will be gradual and minimal. Further to that, property sales is driven more by sentiment, which remains buoyant, rather than interest rate alone. We like the residential sub-segment on expectation of higher sales in CY2010 amid still low interest rate and improving sentiments. We like mid-cap property stocks such as Sunway City and Sunrise due to more compelling valuations. We also like Mah Sing among non-rated property stocks.
Market snapshot
The KL Property Index gained 3.0% in June in line with recovery in the broad market though market trend lower again over the past 2 weeks. With the exception of Sunrise, all stocks under coverage posted gains in June with SP Setia gaining 8.3% on the back of a strong set of 2QFY10 results. Property sales of RM1.4bn have been achieved for the 7MFY10 period and we expect the property sector bellwether to achieve its RM2bn sales target for FY10 with ease.
On major shareholding changes, June saw net accumulation in SP Setia, Sunrise and YNH Property. Employees Provident Fund (EPF) and Permodalan Nasional Bhd added 3.9m and 1.4m shares respectively in SP Setia while Skim Amanah Saham Bumiputra sold 1.1m shares. Datuk Tong Kooi Ong and EPF added 0.3m and 0.8m shares respectively in Sunrise while Dato' Dr. Yu Kuan Chon and Aberdeen Asset Management both added 0.6m and 1.5m shares respectively in YNH Property.
Acquisitions news flows
Developers again were bullish on the near term prospect of the property market judging by the number of acquisition news flow in June.
• MRCB, which has been widely expected to acquire more landbank in KL following its rights issue, may close in on a deal soon costing as much as RM170m, according to media sources. Its CEO Mohamed Razeek Hussain has been quoted that a piece of land measuring 0.45ha to 0.9ha, located a stone's throw away from the Petronas twin towers has been identified.
• Paramount became the latest developer to expand to Cyberjaya as It has acquired a 50.01 acres land from Cyberview and Setia Haruman for RM78.4m cash which will be developed into a RM530m residential project. Other developers which have recently expanded into Cyberjaya include Mah Sing and Glomac. Both developers have done well judging by encouraging take-up of recent property launches.
• Axis REIT acquired two industrial buildings in the Klang Valley for RM134m cash. It also plans to undertake a placement of up to 68.8m new units, representing about 22.4% of the existing units in circulation, at a price to be determined later. We view these acquisitions positively given pre-financing net yields of between 8.1% and 9.5%.
• KSL Holdings acquired a 0.84-acre land in U Thant area, Kuala Lumpur for RM25.4m, about RM700 psf which will be developed into a 10-storey condominium with GDV of RM100-110m.
• State-controlled Kumpulan Hartanah Selangor is reportedly finalising the purchase of a 9.3 acre plot in Section 14, Petaling Jaya near the Asia Jaya LRT station and opposite the Armada Hotel which will be developed into a high-end mixed development with a potential GDV of nearly RM1bn.
• Sunway Holdings, a sister company of Sunway City, has entered into a memorandum of understanding with Dasa Tourist Complex (Private) Ltd to explore the possibility of forming a joint-venture (JV) company to construct and develop a 34-storey building comprising 71 commercial units and 176 residential units on a piece of land in Colombo city in Sri Lanka which has a GDV of US$78m (RM250m).
• Naim Holdings signed a memorandum of understanding (MoU) with several parties in China and Sarawak to develop Panyu-Miri Smart Cities (PMSC). The parties Naim Holdings entered into the MoU with are Miri City Council in Sarawak; Guangzhou Panyu Economy and Trade Promotion Bureau of Guangzhou; and Institute of Digital Guangdong (IDG) from China.
• IGB Corp, through its associate company St Giles Hotels, has bought two hotels in New York City for US$78m (RM2.55m) from Starwood Hotels & Resorts Worldwide Inc. The hotels, located in midtown Manhattan, were previously operated by Starwood under the W brand. Following the acquisitions, the hotels have now been rebranded as St Giles Hotel New York - The Court and The Tuscany Hotels.
Termination of deals
Amid all the positive news flows, there were several bad news last month involving the termination of land deals and joint ventures.
• IJM Land and IGB announced the termination of a joint venture to develop a project in Melawati. We understand this was due to much delay in launching the project following residents’ protests over the development. Nevertheless, we expect no material impact on earnings as this project has generally not been accounted for by analysts.
• According to media report, LTAT will no longer have a role in the development of RMAF airbase in Sungai Besi. Instead, it will be the lead developer in the redevelopment of the 245-acre Batu Cantonment army base in Jalan Ipoh. LTAT’s unit Boustead Holdings has also been reported to have a role to play in the said development.
• Berjaya Land has aborted its proposed US$200m (RM640m) international themed village project on a 145-acre land in Jeju Island, Korea after the memorandum of understanding with its JV partner lapsed.
• Bolton has terminated the proposal to acquire a 5.5-acre parcel of land in Kuala Lumpur for RM39m after the vendor terminated the deal which Bolton alleges is in breach of the latter’s obligation. Initially inked in March 2010, the land deal would have seen Bolton developing a RM280m serviced apartment project on the site which is located within the commercial and residential zone of Taman Maluri and enjoy excellent view frontage of Jalan Peel.
Other corporate news
• Asia Pacific Land (AP Land) is partnering HELP International Corp Bhd in a 50:50 joint venture by identifying education business opportunities worldwide, including in Malaysia and China.
• IJM Land has realised its investment in its retail property Aeon Bandaraya Melaka after agreeing to sell the property to ADF Tiger III Ltd for RM66.3m cash which will result in a RM64m gain.
• MK Land Holdings sold 33.28 acres of leasehold lands for a sum of RM50.7m to Pembinaan Tegas Megah Sdn Bhd. The land comprises two leasehold parcels located in the Ulu Kelang region. The first measures 31.96 acres, which has a total consideration of RM48.7m, and the second measures 1.32 acres, and has a total consideration of RM2m.
• Gula Perak entered into a sales & purchase agreement to sell The Dynasty Hotel in Kuala Lumpur, and The Empress in Sepang, Selangor for a sum of RM193.9m to Time Glory Investment Ltd to repay part of the expired Redeemable Secured Notes 2003/2008, which totalled over RM287m.
• Multi-Purpose Holdings will be announcing its joint venture (JV) with a public-listed developer in the next several weeks to mark its entry into the property development sector which may involve its RM3bn iconic integrated mixed development project at the junction of Jalan Sultan Ismail and Jalan Imbi near Park Royal Hotel, which is currently in the planning and designing stage. The 2.4ha will have a retail podium, a 50-storey luxury condominium, a 35-storey four-star hotel and 30-storey office tower.
• Tradewinds Corp which is undertaking the RM450m refurbishment of the 29-year-old Menara Tun Razak in Jalan Raja Laut, will construct a 40-storey office building, next to the Menara Tun Razak, later this year.
Stocks valuation and recommendation
We remain bullish on the residential sub-segment of the property sector, as we believe investors’ concern on the impact of interest rate hike has been overblown. We hold the view that interest rate hike will be gradual and minimal. Further to that, property sales is driven more by sentiment, which remains buoyant, rather than interest rate alone. We like the residential sub-segment on expectation of higher sales in CY2010 amid still low interest rate and improving sentiments. We like mid-cap property stocks such as Sunway City and Sunrise due to more compelling valuations. We also like Mah Sing among non-rated property stocks.
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