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Upcoming IPOs set to spur property sector this year

by Ronnie Teo, ronnieteo@theborneopost.com. Posted on May 11, 2013, Saturday

KUCHING: Several mega initial public offerings (IPOs) within the next few months are set to boost both local and foreign investors interest in the property sector.

“Within the next few months, there will be three new listings with potential market capitalisation of RM9 to RM13 billion each (almost comparable to UEM Land Bhd) which should boost both local and foreign investors interest in the sector,” highlighted analyst Yee Mei Hui from HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) in her sectoral outlook yesterday.

One main contender is the Kuala Lumpur Convention Centre (KLCC) stapled security which was listed on the Main Board of Bursa Malaysia on Thursday this week.

The property holds with an estimated market capitalisation of RM13 billion, making it the largest Malaysian real estate investment trust (REIT) by market capitalisation and asset size of RM15 billion.

“Despite the recent strong re-rating, dividend yield is still an attractive 4.7 per cent for super prime commercial assets with resilient earnings from long-term leases with bluechip tenants, including triple net leases with parent Petroliam Nasional Bhd (Petronas),” Yee highlighted.

“The injection of Suria Mall (70 per cent owned with CBRE owning the rest) into the REIT is imminent in our view, given the attractive tax savings which could boost our revalued net asset value (RNAV) by 17 per cent.

“We do not discount the possibility of potential placements in future to improve liquidity as Petronas’ effective stake has increased to 75 per cent from 51 per cent post-conversion of redeemable convertible unsecured loan stocks (RCULs) which will leave minimal dilution impact with tax savings from REITs.”

Another major project set to list soon in June this year is the Iskandar Waterfront Holdings Sdn Bhd (IWH) with a market cap of RM9 billion.

“We expect interest in IWH to be strong given lack of large-cap purer proxies to Iskandar Malaysia (aside from UEM Land),” Yee believed.

“IWH will be among the largest landowners in Iskandar Malaysia with 4,500 acres (translating to a potential RM80 billion gross development value) in the more matured Johor Bahru, Danga Bay and Tebrau areas.”

Yee stated that valuations for IWH would likely be at a premium and also benchmarked against China-based developer Country Garden Ltd’s recent acquisition of 55 acres in Danga Bay at RM376 per square feet (psf).

The third major lister was IOI Properties Bhd (IOI Properties) with a market cap of RM12 billion and set to list by September.

The HwangDBS Research analyst was of the opinion that IOI Properties would be among the most profitable developers with earnings before interest and tax of more than RM500 million and margins above 40 per cent thanks to low land costs from conversion of plantations assets.

To note, IOI Properties was estimated to have an asset size of RM15 billion with Malaysia, Singapore (Sentosa Cove) and China (Xiamen) contributing one thirds each.

“We believe the group can be the new bell-weather for the sector given the dearth of large entrepreneurial-driven developers with strong track records and earnings growth, following a spat of mergers and acquisitions over the past two to three years,” she said.

“IOI Properties will have one of the largest exposures to townships, leveraging on the robust demand for affordable housing.

“Its landbank in Ayer Keroh also stands to benefit from potential stop along the proposed KLSingapore high speed rail while its Kulai landbank can ride on rising investments into Iskandar Malaysia (located near Johor Premium Outlet),” she concluded.

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