I-bhd to reap i-city reward

I-bhd By Kenanga Research Target price: RM1.51

I-bhd, the master developer of i-city, is now ready to reap the fruits of its labour as most of the major infrastructure works at i-city in Shah Alam have been completed.

The group will be realising i-city’s conservative gross development value (GDV) of Rm3bil over the next eight years but Kenanga Reseach reckons the real GDV could be close to Rm5bil.

“Our computation reveals that the current total GDV guidance of Rm3bil is based on average selling price (ASP) of less than RM400 per sq ft.

“We think that this is extremely conservative since recent sale of iResidences was priced at RM500 per sq ft.

“Assuming the ASP hits a high of RM550 per sq ft, total GDV will be much closer to Rm5bil,” Kenanga said in a recent report.

According to the research house, since obtaining the Multi Super Corridor status in i-city four years ago, the group had been rather quiet as it was focused on completing the major infrastructure works of i-city given the onset of the global financial crisis in 2008.

“Today, the group has spent some Rm30mil on major infrastructure works, which means its upcoming projects are now readily developable.

“Up till 2010, I-bhd was cautious with its launches and so far, has completed only 0.6 million sq ft of gross floor area of offices, of which Al-rajhi has bought 250,000 sq ft and the rest are currently being occupied by Maybank and Orisoft among others,” it said.

It said i-city’s projects would likely be completed in the next eight to 10 years and it enjoys strong state government support as i-city is positioned to improve tourism and content of knowledge-based industries, which will inevitably enhance the value of Shah Alam.

The entire development, which spans 72 acres, of which 15% has been developed, is one of the few large freehold land banks in Shah Alam.

According to Kenanga, i-city’s annual GDV was expected to be between Rm450mil and Rm500mil, based on 1 million sq ft of gross floor area per annum.

The group has just launched iResidence with a GDV of Rm230mil at an average selling price of RM500 per sq ft. It features mostly service residences and some duplex units. The take-up rate has been extremely encouraging at 65% since the launch in March, which could be due to the attractive unit pricing of RM320,000 to RM650,000 per unit and also the attractive financing packages.

“For the remaining part of the current financial year ending Dec 31 (FY12) the group will be launching its Sovo/soho project at i-city with a GDV of Rm200mil, which will likely be priced similar to i-residence,” it said.

Kenanga estimated FY12 to FY13 net profit at RM11.4 mil to RM24.3 mil, which would yield more than 100% year-on-year growth each, based on targeted FY12 and FY13 property sales of Rm225mil to Rm270mil.

The research house also noted that I-bhd had zero gearing balance sheet and had maintained a net cash position for the last five years.

MMC CORP BHD By Hwang-dbs Vickers Research Buy (maintain) Target price: RM3.70

MMC Corp Bhd is starting to unlock value as there is strong interest in Gas Malaysia’s June initial public offering (IPO), in which it owns a 55% stake. This is not surprising despite the uncertain environment.

Gas Malaysia will be a cash cow with a dividend policy of 75% of profit after tax. In the first year it will be 100% with a 5.5% yield for 6months.

The listing market cap of Rm2.8bil is in line with our sum-of-parts (SOP) but there could be an upside in its share price as yield compresses in a more risk adverse environment.

Its listing will have a neutral impact on our earnings and SOP assuming about RM60 mil per annum in interest savings as the Rm300mil proceeds is used to pare down holding company debt and its stake is diluted to 31%.

A one-off gain in the second quarter ending June 30, 2012 is expected because of low book value at MMC.

Its 51% subsidiary, Malakoff, is planning for listing in 2012, which is timely with the expansion of Tanjung Bin and more recently, a 40% stake in Hidd Power, a power generation and water desalination plant in Bahrain.

Assuming MMC’S stake in Malakoff is reduced to 38%, its debt would be reduced by Rm12bil on its balance sheet, and gross gearing to 0.7 times from two times.

Its power business strategy is to negotiate the renewal of its power purchase agreement and to participate in greenfield projects. The Prai power tender is more competitive because it is the first project to include international bidders, and the project internal rate of return could drop to 8% or 10% from the mid-teen fugures.

It was recently highlighted that Malakoff may invest in two power plant projects in Pakistan. The group clarified that Malakoff was invited by the Pakistan government to explore the wind power plant, but it was too early to make a decision. Meanwhile, it said it would not proceed with the coal-fired power project.

Port of Tanjung Pelepas (PTP) is confident of growing its twenty-foot equivalent units (TEU) by 11% to 8.3 million this year. It may spend up to Rm1bil to expand berths 13 and 14, which would take a capacity to 12 million TEU from 9 million now.

PTP is less affected by slowing global trade as it is a trans-shipment port.

We do not discount a listing of its port business (including Johor Port) once it rationalises its container business to Tanjong Bin.

Therefore we view the stock as “buy” with a target price of RM3.70 based on a 20% discount to SOP.

Besides its on-going efforts to unlock value, we like MMC as a strong Iskandar proxy (67% of SOP) and an alternative proxy to the MRT project.