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Saturday, November 10, 2007

Johor-based KSL gets on the Klang scene

The growth of Klang Valley properties, both in terms of pricing and the opening up of new and upgrading of existing areas, has attracted a Johor-based developer.

KSL Holdings has signed a sale and purchase agreement with timber-related business operator Prospell Enterprise Sdn Bhd to buy 446.4 acres of agricultural land for RM156.5mil cash (or RM8.05 per sq ft).

The freehold land, which is located at Jalan Klang–Banting within Blackwater Estate (Klang), is situated about 45km south west of Kuala Lumpur City Centre and is about 15km south of the Klang town centre.

On-going mixed development and mature housing projects e.g. Kota Bayumas by Island & Peninsular Bhd and Bandar Bukit Tinggi 3 by WCT Land Bhd are in the vicinity.

The acquisition is expected to be completed by the second quarter of 2008. The management hopes to launch this project, catering to the middle and high-end market, in the middle of next year.

The Klang property sector has been enjoying good growth of late. The opening of new areas by the likes of WCT group and other players in different parts of this port township has accelerated growth considerably compared with other townships in the vicinity.

As it becomes more crowded and expensive to own a house in the city and suburbs like Petaling Jaya, it is only natural that homebuyers will head further out where prices are more competitive.

On a broader economic growth basis, the interest is greater towards the south rather than the north. In addition, the opening up of new supermarkets has also made Klang rather attractive and self-contained, attracting new entrants. Hence, push and pull factors are contributing to Klang's growth.

The above serves as a background for KSL’s maiden foray into the larger Klang Valley picture. Its decision to spotlight on Klang is also noteworthy as this is an established township on the brink of new growth.

According to an analyst who declined to be named, the price of RM8.05 psf is reasonable.

Real estate consultancy Henry Butcher Malaysia (Sel) Sdn Bhd valued the land at RM157mil only recently.

About five years ago, WCT Land paid RM6.21 psf to Kumpulan Guthrie for the 426 acres for BBT3-Bandar Parklands land in October 2002.

“The RM1.80 psf appreciation over the past five years, which translates into a compounded annual growth rate (CAGR) of 5.3% is reasonable given the new developments in this area,” the analyst says.

Comparing KSL’s purchase to another transaction, even if one were to include the conversion cost from agricultural to mixed development, the total land price is estimated at RM9.05 psf.

This is 9.5% lower than the RM10 psf PG Resorts (subsidiary of Petaling Garden Bhd) paid for 50.9 acres (near the abovementioned 446.4 acres) to Island & Peninsular group back in November 2006.

The new land carries a gross development value (GDV) of at least RM1.5bil over an eight-year development period.

“It is expected to expand KSL’s landbank by 21% to an estimated 2,516 acres. This will be KSL’s first township project in the Klang Valley which will be similar to adjacent BBT3-Bandar Parklands comprising mixed development for the low to medium range market,” the analyst says.

KSL will re-design the layout with a fast development turnaround as it aims to launch the project by next year.

Another analyst who also declined to be named says the management expects pre-tax margins to remain at 40%, similar to its Johor-based projects.

Assuming a two-year development period per phase, this could add an annual net profit of RM28mil or 30% to our financial year 2009 forecast, she says.

The purchase consideration is estimated to raise the group’s proforma net gearing to a still comfortable 0.3 times as at June 30, 2007 from a negligible net debt position currently.

Analysts are positive on the acquisition as it will help to diversify KSL’s source of earnings.

The group’s existing projects are Johor-centred.

This recent purchase would enable KSL to tap into the current boom in the Klang Valley property scene.

“We like KSL for its strong brand name as a Johor developer, which is presently making inroads into the Klang Valley development scene, impressive pre-tax margins of 40%, strong balance sheet and good dividend yields of 5.5%,” an analyst says.

It is a buy call at an unchanged target price of RM3.40, pegged to a 20% discount to our return on net asset value (RNAV) of RM4.25. This implies a financial year 2008 price earnings target of 10 times.

By The Star (By

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