30 JEWELS 2013 Edition
A Perfect Mix
•Management refocusing on property development after sorting out legal tussles over a few big projects
•Stands to play a bigger role in the Pusat Bandar Damansara (PBD) redevelopment project, which is now effectively held by Malton’s 38% major shareholder Datuk Desmond Lim
•We value the Group at MYR1.80, based on a 50% discount to RNAV
Malton has a landbank of over 700 acres, carrying a gross development value (GDV) of MYR11bn. It is well-positioned at all the right locations within the West Malaysia property market, including Bukit Jalil, Kuala Lumpur; Batu Kawan, Penang; and Pengerang, Johor.
Raring to go. Trading at just 0.59x P/BV (NTA per share: MYR1.43), the market has largely underestimated the fundamental value and prospects of the Company. Following a two-year lull and after sorting out a few big projects (including Bukit Jalil and PBD), Management is now refocusing on its property development business, with a few sizeable projects lined up at strategic locations.
Pavilion 2 at Bukit Jalil worth MYR3.5bn. Malton plans to put up a mall as sizeable as Pavilion Kuala Lumpur at Bukit Jalil. We believe that other commercial and residential components will be easily sold, given: i) the mature surrounding residential areas, ii) a 5.3m population catchment, and iii) buyer confidence, as reflected by the success of the Pavilion and Banyan Tree Signature projects in the city centre.
A mainland Penang play. Malton holds 300 acres (GDV: MYR3.88bn) in Batu Kawan, right off the Penang Second Bridge (PSB). The launch of Phase 1 (shop offices and superlink homes worth MYR440m) is targeted for mid-2014 – just after the opening of the PSB, when the growth visibility is substantiated. In our view, proper commercial developments on the mainland are scarce. Therefore, Malton’s project will be designed to complement the business activities within the Seberang Prai Selatan area.
Well-positioned in Johor. Malton is also well-positioned in Pengerang, holding 200 acres in Malaysia’s next mega oil & gas (O&G) hub. Its project is at the southern tip and has a GDV of MYR480m. We believe that the market may not be aware of this land in the Group’s portfolio. We also expect the project to take off in one to two years’ time when the O&G hub is more developed, and as the working population increases.
Involvement in PBD a wild card. Datuk Desmond Lim now effectively controls the PBD land, following the recent settlement with Johor Corp. Given that he is also a 38% major shareholder in Malton, we do not rule out the possibility that the Group may be the contractor for the redevelopment project. It may even become the joint developer, with Datuk Desmond providing the land. The commercial redevelopment of PBD alone could be worth MYR2bn-MYR3bn, given that two MRT stations will be located within the vicinity and that prime land is scarce within the affluent Bukit Damansara area. If our expectation materialises, this project could trigger a re-rating, as RNAV will be substantial.
Company Report Card
Latest results. Malton’s 3QFY13 earnings were weak, and we expect the same trend in the upcoming 4Q results. Current earnings are mainly underpinned by MYR205m in unbilled sales from Amaya Maluri, The Cantonment and Nova Saujana, as well as a MYR505m contract from its construction division. We expect a boost in FY14F earnings, due to the disposal of its commercial building at VSQ PJ via the PBD transactions. Apart from this en bloc deal, earnings from FY14 onwards will also be supported by the pipeline project launches at Bukit Jalil, Pantai Dalam, Jalan Ipoh, Ukay Spring and Seri Kembangan – all in the Klang Valley.
Balance sheet / Cashflow. Malton currently has a net gearing of just 3%. We expect the Group to take on some borrowings for the development of the mall. However, we are only likely to see the impact on its balance sheet in 2-3 years’ time, as the construction of the mall will only commence in 2015.
ROE. ROE is expected to pick up gradually from FY14 onwards, as more earnings from property projects kick in.
Dividend. Malton does not have a fixed dividend policy. Its payout ratio over the past two years was 12%-17%. We estimate a DPS of MYR0.02 and MYR0.03 for FY13F-FY14F (DPS was MYR0.03 in FY12).
Management. Malton is managed by a group of professionals. As its major shareholder Datuk Desmond also has other property businesses in his personal capacity, some human resources and back office operations are shared. Nonetheless, the property development division is led by an experienced team, which includes the leader of the Bukit Jalil project, Mr Wee Seng Fatt.
We value Malton at MYR1.80, based on a conservative 50% discount to RNAV. The potential involvement in the PBD project could likely spur some upside to our RNAV estimate due to its scale. The backing of Datuk Desmond should not be underestimated, considering his testimony in Pavilion Kuala Lumpur and Banyan Tree Signatures. Malton’s current valuation of 0.59x P/BV and P/E of 5.8x for FY14 are undemanding.