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Wednesday, January 15, 2014

SBC CORPORATION BERHAD - Value from RM1.8bn jesslton Quay


The share price of SBC Corportation (SBC) gained some traction of late with interest stirred by Singapore Exchange-listed property developer GSH Corp Ltd's acquisition of a 77.5% stake in Sutera harbour Resort and expectations that the retail sector in Sabah will grow by 5% to 10% for the next few years which could attract more retailers to invest there. The focus is on SBC's RM1.8bn gorss development value (GDV) JV with Suria Capital Holdings Berhad (Suria)'s to develop a 16.25-acre sea fronting land, which could easily be the Group's largest project so far, if it materializes.

Total RM3bn GDV worht of landbank with additional RM1.8bn coming from Jesslton Quay, Kota Kinabalu, Sabah. We understand that the current landbank has estimated GDV of Rm3bn, from key projects such as the RM1.1bn East Kiara and the RM1.2bn fBatang Kali township. SBC on 21 May, 2013 enterd into a JV with SuriaCap that could potentially bump up the Groups' GDV to RM4.8bn, and more importantly, giving it the exposure to a sea-confronting land in Kota Kinabalu, Sabah. Despite a slight delay, the JV is expected to be concluded soon with Suria has already obtained its shareholders' approval for the JV on Oct 24, 2013.

Jesselton Quay (JQ) will consist of mixed properties including retail commercial spaces, premium offices, waterfront serviced residences, waterfront business hotel and world class marina facilities with RM324m (or 18% of GDV) payable to Suria as land cost. We understand that the payment will be done progressiely i.e. without stranning SBC's balance sheet. Jesseltion Quay is said to have the potential to become Kota Kinabalu's cruise tourism hub when the mixed development equipped with an international cruise terminal is completed in 2017. We understand that one of Star Cruise's ships SuperStar Aquarius has started its seasonal six-month homeport deployment from the port nearby recently.

Game changer for SBC, if the project can take off as expected. The potential value creation is estimated to be c.RM102m or 49sen/share by just assuming 10% PBT (vs. the Management's guidance of 30%-40% PBT) JQ is one of the key projects listed under Sabah;s Economic Development Entry Point Porjects (EPPs) to turn KK into a lifestyle hub. Grabted, demand for high-end properties has increased markedly in recent years (averaging c.RM141m sales per quarter in 2013 for properties above RM500k vs 10-year average quarterly salws of RM49m), we are of the view that demand risk remains considering high average selling price touted at RM1000psf.

Fair value Rm1.90 (c.50% discount to RNAV), with the JQ contributing c.RM0.49 (assuming 10% PBT) to our estimated RNAV of RM3.70. Every 10% increase of PBT margin would bump up our RNAV by RM0.49. Unbilled sales stood at RM200m and the Management is expecting new sales of TM220m-RM230m, driven by exisitng projects such as Batang Kali and Kiara East. With JQ on board, we estimate SBC could double its earnings from c.RM22m levels, or just 6x-7x PER based on our fair value. Key risks include cancelation of the Jesselton Quay JV, demand and execution risk.

Source: PublicInvest Research - 15 Jan 2014

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