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Thursday, March 28, 2013

KSL - Deep Value Stock


Maintain buy at RM2.05 with a target price of RM2.61: The positive news
flows on Iskandar Malaysia in Johor has picked up considerably over the
past three months.

Notable news flows have been the announcement of the proposed high speed
rail link between Kuala Lumpur and Singapore and the Singapore-Johor
Baru rail transit system, as well as the entry of major foreign real
estate players like Singapore’s CapitaLand Ltd and Ascendas Land Pte
Ltd, and China’s Country Garden Holdings Ltd to undertake development
projects in Iskandar Malaysia.

Also, the latest property cooling measures implemented in Singapore
(higher buyer stamp duty, lower loan-to-value ratio) have driven some
prospective Singapore property buyers to Iskandar Malaysia.

These positive developments, coupled with improved market sentiment,
have resulted in the share price rally of developers with sizeable
exposure to Iskandar Malaysia.

KSL Holdings is a real estate group with strong roots in Johor to ride
the Iskandar boom. We estimate the group to have three township projects
with over 720 acres of land bank and RM2.5 billion gross development
value (GDV) in Iskandar Malaysia.

Its projects are located in Nusajaya, Kempas and Ulu Tiram, enabling the
group to undertake multiple concurrent launches and capture the rising
demand in different localities within Iskandar.

Also, the group’s key property investment assets — the 450,000 sq ft KSL
City Mall and 868-room KSL Resort Hotel — are the key beneficiaries to
the higher economic activities in Iskandar Malaysia.

We gather that KSL Resort Hotel is enjoying high occupancy rates driven
by its strong marketing team as well as strong underlying demand for
hotel rooms in Johor.

KSL Holdings had undertaken two major capital intensive projects in the
past four years, namely the integrated KSL City project as well as the
acquisition, planning, site preparation and landscaping of its 445-acre
Canary Garden project.

Moving forward, we forecast that the group will enjoy strong free cash
flow of RM30 million to RM80 million per year, assuming RM40 million
yearly capital expenditure for land acquisitions. —

/Affin Research,March 25/

This article first appeared in The Edge Financial Daily, on March 26, 2013.

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