Target Price: MYR2.21
52-wk Price low/high (MYR) 1.40 - 2.31
Property Development Coming In Strongly
KSL’s 2Q13 results came in above our and market expectations. The strong earnings were mainly driven by higher progress billings from the ongoing projects in Iskandar, especially in Johor Bahru. Meanwhile, income from investment properties remained stable. We maintain our NEUTRAL rating and MYR2.21 FV. The sector outlook is increasingly challenging due to concerns on economic and regulatory risks.
• Above expectations. KSL’s 2Q13 results beat our and market expectations, on an annualised basis. The sequential growth in earnings was mainly driven by strong progress billings from the ongoing projects in Iskandar, such as Taman Nusa Bestari and Taman Kempas Indah. The take-up rate for its projects in Johor Bahru was also higher. Meanwhile, revenue from the shopping mall, hypermarkets and hotel remained stable. As expected, no dividend was declared.
• Margin dropped slightly but not a concern. 2Q13 EBIT margin contracted to 42% from 49% in the previous quarter. This could largely be due to the timing of its construction progress. We expect margin to stabilise at around 40-45% going forward.
• Forecasts. We make no changes to our forecasts at this juncture, pending an update from management. Accessibility to management has been very difficult, and we believe an improvement in investor relations will help the company better realise its intrinsic value. KSL has accumulated a quality pool of assets, which provide sustainability in earnings.
• Maintain NEUTRAL. We maintain our NEUTRAL rating. Our fair value is kept at MYR2.21, based on a 50% discount to RNAV. While the Iskandar region is still seeing strong buying momentum, we believe the supply issue will arise over the short term. KSL’s township in Bandar Bestari Klang will, however, mitigate the risk.
Publish date: 30/08/13