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Monday, May 26, 2014

SBC's Sabah JV project to start in next 3 months


"There is affirmation now,” SBC Corp Bhd managing director Sia Teong Heng says of the company’s joint venture (JV) project in Kota Kinabalu which is slated to kick off in the next three months.
It has been a year since SBC Corp signed a JV agreement with Sabah Ports operator Suria Capital Holdings Bhd to develop Jesselton Quay - a waterfront mixed development that promises to enhance the living standards of Kota Kinabalu - and Sia is eager to get things rolling.
“There have been so much talk about the project and bureaucratic procedures to deal with, what we really want is to get things going on the ground as soon as we can,” Sia tells StarBizWeek, expressing an urgency to put words into action.
Under the JV, SBC Corp is entitled exclusive rights to develop the project on the parcel of land which Suria Capital owns. On April 28, the ports operator just settled the balance of the land premium.
Last week, SBC Corp signed a loan agreement of RM240mil with RHB Bank Bhd to facilitate the project.
Before piling works can begin however, the company has one last leg of bureaucracy to sit through before it can begin work at the 16.25-acre sea-fronting site.
Its masterplan is currently being reviewed by the authorities to gain approval and Sia says, “we are hoping the plan is approved by July and once it is, we can start construction”.
Sia adds that construction is estimated to begin in the next three months.
As SBC Corp gets ready to drive piles into the former port area, its bankers have also been busy acquainting the SBC Corp name among institutional investor communities. In its rights issue exercise in December, a company executive says SBC Corp has attracted some insurance funds to invest in the company. He declined to name the funds.
The small cap property developer has no doubt been on investors’ radar lately, its share price climbing 67% year-to-date, closing at RM2.09 yesterday. Its 52-week high was RM2.49.
The executive adds that interest among institutional investors remain strong, as the company is in the midst of placing out shares to some institutional parties. The private placement follows Section 132D of the Companies Act, 1965, which grants the company directors the authority to “allot and issue shares in the company to any person other than a director or major shareholder of the company or person connected with any director or major shareholder of the company, at any time until the conclusion of the next annual general meeting”.
Under this arrangement, the private placement will be no more than 10% of SBC Corp’s total issued and paid-up share capital.
“The private placement will be done at market price, with some discount,” the executive says, adding that the mandate has not been signed.
Post this exercise, major shareholder Sia may see a slight shrinkage of his stakeholding. He currently holds 36.9% of the company his father started.
However, the dilution should not have any impact on SBC Corp’s business.
“There will be a small dilution in Sia’s stake in the enlarged share capital but whatever the dilution, it will not be lower than 33.3%. Sia will remain in the driver’s seat for SBC Corp,” the executive clarifies.
The reason for the private placement was, he says, to create more share supply in the market for institutional investors who have been knocking on SBC Corp’s door to invest in the company.
“The institutions already have the interest but we just don’t have enough shares to go around. It is a right time for this exercise,” the executive says, “At the same time, we can raise funds for our projects.”
Gem of South China Sea
Jesselton Quay is not the first Sabah project for SBC Corp, as it has already The Peak Vista and The Peak Soho, a residential and commercial development consisting of condominiums and small office home offices (SOHOs).
The waterfront project, however, will be a key driver of its earnings in the years to come based on its size and potential as an iconic landmark for Kota Kinabalu. Sia believes that the project will not only upgrade the lifestyle standards of Kota Kinabalu but also further regionalise the seaside city.
The development is expected to mimic the success story of world renowned water front landmarks such as Marina Bay Sands in Singapore, Victoria & Alfred Waterfront in Cape Town and Xin Tian Di in Shanghai.
The gross development value (GDV) for Jesselton Quay is RM1.8bil spread over the estimated eight years of construction. Of this, the gross development cost is estimated to be between RM800mil and RM1bil, according to Sia.
Not forgetting however, that under the JV agreement between SBC Corp and Suria Capital, the former will need to pay RM324mil or 18% of the GDV to Suria as land cost. The payment is stretched over eight tranches.
CIMB Research’s Nigel Foo notes:
If all goes according to plan, we think that SBC Corp will launch the first phase of Jesselton Quay in three to four months. The first phase, a combination of retail and serviced suites, will be launched in stages and have a total GDV of RM500mil. We assume the project’s earnings contribution to SBC Corp will only begin in the financial year 2016.
“The stock trades at a huge 67% discount to its revalued net asset value per share and we believe that the discount will narrow as the newsflow on the project should be positive in the next few quarters.”
CIMB Research’s earnings forecast for the project is conservative, expecting an average pre-tax margin of 20% to 25%. “Among the property stocks under our coverage, SBC’s GDV/market cap ratio of 19x is the highest, indicating that the stock has potential value to be unlocked.”
RHB Research Institute analyst Jerry Lee comments that the development will be crucial to supplement the proposed Kota Kinabalu International Cruise Terminal, a world class cruise terminal project by National Cruise and Ferry Infrastructure and Tourism Blueprint.
The blueprint is developed jointly by the Federal Government’s Economic Planning Unit, Ministry of Tourism and Culture and the Ministry of Transport to create a path for a Greater Kota Kinabalu as outlined under Sabah Development Corridor’s ‘The Corridor and Cities Transformation Programme’.
“We understand that Jesselton Quay will become an iconic Kota Kinabalu city new waterfront and premier tourism frontier, with a marina focus complete with its own cruise terminal.
“It’s just a matter of time for the Jesselton Quay project to materialise as it has the support from both Federal Government and Sabah government. Suria, as the land owner, is confident that the project will commence within 2014 as planned,” he says in a note.
SBC Corp is looking to price its residential and commercial units between RM1,000 to RM1,500 psf.
The current rates in Kota Kinabalu for residential high rise have hit RM1,000 psf while malls have sold lots for up to RM2,000 psf, according to the company executive.
The Peak Vista is now selling at RM1,000 psf while the SOHOs are going for RM800 psf.
For the retail portion, SBC Corp has not finalised the rental rates yet. Sia says the developer is working to create a balance of day and night crowds from the offices and touristy attractions.
Jesselton Quay includes commercial suites, retail mall, retail units, office towers and a hotel in three precincts.
There will be 918 commercial suites in six 15-storey tower blocks, ranging in size from 640 sqf to 1,200 sqf per unit and are slated for completion in 2017.
There will also be a retail mall comprising three storeys of seamless retail podiums with a total net floor area of approximately 400,000 sq ft.
The mall is slated for completion in 2019.
The last precinct comprises six-storey signature offices with an approximate NFA of 91,000 sq ft; a 25-storey signature tower with a 380-room hotel – that will occupy 12 out of the 25 floors – with an approximate NFA of 160,000 sq ft; and offices of with an approximate NFA of 186,000 sqf on 12 floors with one lobby floor.
These are slated for completion in 2021. SBC Corp was selected as one of the top five picks among RHB Research Institute’s 30 small cap jewels.
The research house has also picked property as one of its overweight sectors for this year.

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