SBCCORP: Target Price RM2.35 according to Kenanga

Kenanga wrote about SBCCORP today and assign Target Price of RM2.35, implying 38% share price upside.

INVESTMENT MERIT

·          Low land cost. Most of SBC’s landbanks were acquired between the period of 2000-2004, hence relatively low in land cost. Out of its c.134ac landbank, the bulk (59%) are located in Ulu Selangor, 23% are located in KL (mostly in the Mukim Batu area), 10% are in Kota Kinabalu (“KK”) and the remaining in Kuantan. Their Mukim Batu land is near the Taman Wahyu area while they also have niche landbank along Jln Ipoh. Landbanks in KK are in Signal Hill and Tj Lipat, which is a prime area and MAHSING has projects there that have fared well in terms of take-up rates and pricings. Their net gearing is comfortably at 0.2x which provides ample room for landbanking. ·          SBC has been making in-roads into Kota Kinabalu, Sabah (KK), which is another booming market. The big boys are already there; MAHSING has recently acquired land there, while SPSETIA has kicked-off its Aeropod@Tanjong Aru project while IJMLAND has niche landbanks in the area. In May-13, they entered into a JVA with Suria Capital Holdings Bhd to undertake a mixed development project on 16.25ac land along the Jesselton Waterfront, KK. JVA is likely concluded in Dec, so we believe significant earnings contributions will only be felt from FY15 onwards.  The project will have GDV of RM1.8b, in which Suria is entitled to 18% of the GDV as part of land payment; positively, the land obligations are stretched over 8 tranches over a 7 year development period. ·          Risks. We note that revenue has been on a declining trend since 1Q13. However, it 4Q13, revenue did improve by 177% QoQ although it was still 8% YoY lower. We are unclear of their new launches beyond Dex Suites @ Kiara East. ·          Big RNAV upsides and compelling valuations. We project FY14E net profit of RM29.3m (+10% YoY).  The stock is trading at 4.8x FY14E PER and 0.4x FY14E PBV which is far below its peer (developers of RM100-500m market cap) average of 10.8x Fwd PER and 1.0x Fwd PBV. By revaluing their landbanks, particularly the KL and KK landbanks, we derive an RNAV of RM5.86. Even after applying our maximum RNAV discount of 60% on their RNAV (due to small market capitalization of RM145m), we derive a TP of RM2.35, which provides a 38% share price upside to the last price of RM1.70.