KSL expands land bank

KSL expands land bank

By ERROL OH

ALTHOUGH KSL Holdings Bhd's bid last year to substantially enlarge its land bank has gone to court, it has not lost its appetite for acquisitions. In March, the property developer bought almost 300,000 sq ft (6.8 acres) in Johor Baru for RM32.5mil.

KSL made perhaps a more significant move last month when it entered into a sale and purchase agreement to acquire 28.9 acres in Selangor for RM17.8mil.

Before this, the developer had never ventured outside Johor, where it had built a name through a number of commercial and residential projects. Its most recent major developments are Taman Nusa Bestari, Taman Bestari Indah and Taman Kempas Indah, all in the district of Johor Baru.

As at last December, it had a land bank of 2,000 acres in Johor Baru (about 60% of the total), Batu Pahat, Kluang, Segamat, Muar and Mersing.

In a July 14 research report, TA Securities says the Selangor land is located in the vicinity of Sime UEP Properties Bhd's Putra Heights township. Nearby areas include Subang Jaya, Shah Alam and Puchong.

TA reports that the development of the land is scheduled to begin the end of next year. The plan is to build medium to high-end houses such as semi-detached units and bungalows. The gross development value is expected to come to RM140mil.

Says TA: “As this is KSL's first venture into the Klang Valley market, brand awareness for the group is low. Nevertheless, we believe the response to this project would be quite encouraging, premised on the lower pricing strategy adopted.

“In general, KSL prices its properties at a 10% discount compared with other developments in the neighbourhood.”

The stockbroking firm also says KSL has decided to build high-rise apartments on the Johor Baru land it had acquired in March, instead of the original plan for three-storey shophouses. “The switch in plan is to fully utilise and maximise the earnings potential of the limited land area available,” adds TA.

Even without factoring in the two proposed projects, the stockbroking firm maintains a buy call on the stock.

“KSL is currently trading at an undemanding financial year (FY) 2006 price earnings ratio (PER) of 4.4 times (x), possibly affected by the concerns on the intense competition and slowdown in the Johor property market,” TA explains.

“We are still comfortable with our target price of RM2, based on FY06 PER of 6.4x, which is within its historical trading range of 4-11x. Given the hefty upside potential of 38.7% ,excluding the dividend yield of 8%, we reiterate our buy call on KSL.”

The developer has declared a first and final gross dividend of 11 sen per share for FY05. The year before, the gross distribution was 10 sen per share The shares will be traded ex-dividend from Aug 18 and payment will be on Sept 15.

In a research report that came out on May 26, Standard & Poor's also issued a buy call on KSL after working out a 12-month target price of RM1.68. Back then, the stock had closed at RM1.43.

Says the equity research outfit, “Operating predominantly in Johor Baru, KSL has done reasonably well and has managed to maintain its above-industry-average margins of around 40% despite keen competition and supply overhang in Johor Baru.”

In April 2005, KSL entered into a deal with Danaharta Hartanah Sdn Bhd that would have expanded the developer's land bank by 70%. However, the vendor terminated the proposed acquisition in November due to its failure to meet certain conditions precedent. In response, KSL has taken legal action.

It was reported in May that the Court of Appeal had dismissed KSL's motion to extend a caveat on the land.