New condo benchmark

New condo benchmark

CONDOMINIUM prices in Kuala Lumpur continue to rise to record levels following the even more pronounced trend in Singapore.

Sunway City Bhd had a successful launch of its Sunway Palazzio condominium project in the Sri Hartamas suburban area of Kuala Lumpur, which was priced at RM846 per sq ft, a new benchmark for the area.

That meant its smallest unit, with a space of about 2,500 sq ft, was priced at RM2.1mil. The project launch was recently held in Singapore where over 30% of units in the first tower released for international buyers were sold, a magazine there reported last week. An official launch has not been held in Kuala Lumpur yet.

This is a new level for the condo market in the city suburbs. It was reported in this column in January that Bandar Raya Developments Bhd sold most of its One Menerung condominium in the Bangsar area at an average of RM750 per sq ft, a record in that neighbourhood. Prices in Bangsar could rise further, considering that it is a more expensive area than Sri Hartamas and the nearby Mont'Kiara area.

Sunrise Bhd, the biggest developer in Mont'Kiara, should find a good reception in its upcoming launches. In its latest launch late last year, the 10 Mont'Kiara condominium was priced at about RM530psf or an average of RM2mil a unit.

Buyers of the units had found a bargain as the company is expected to price its next project, eleven@Mont'Kiara, at a higher price per sq ft and from about RM3mil a unit.

The rising prices would lead analysts to re-examine their forecasts, which are likely to be revised upwards, along with their estimates of the asset values of property companies.

Some analysts have started to do so. CIMB Research, for instance, last week raised SP Setia Bhd's revised net asset value (RNAV) to RM7.10 from RM6.89. With that, CIMB increased its target price for SP Setia to RM10.00 from RM9.00 as it moved up the RNAV premium from 30% to 40%. The stock closed at RM7.85 on Friday.

While many analysts use earnings as a valuation yardstick here, it is not unusual in developed capital markets to use asset values to appraise a stock's worth. The use of RNAV is particularly suitable where a company's properties comprise small parcels that can be sold quickly.

In SP Setia's case, it is a large landowner but it has proven it can progressively sell its inventory at steady profit margins. Furthermore, bungalow land values at its Setia Eco Park have appreciated to RM110 per sq ft in its latest sales from around RM65 per sq ft when first launched in 2004, CIMB reported.



Ireka's aim



Construction and property developer Ireka Corp Bhd's aim was accurate as it successfully listed member company Aseana Properties Ltd on the London Stock Exchange (LSE) on Thursday, the first Malaysian listing on the Main Market in London in memory.

The listing follows Ireka's sale of several ongoing property development projects, based on a discounted cashflow valuation, to Aseana.

As a result of that, Ireka would be able to post an exceptional gain of more than RM175mil, which is larger than the company's market value of RM145.8mil based on its share price of RM1.28 on Friday.

With that gain, Ireka's net assets per share would increase to over RM2.70 from RM1.02.

While the group is deprived of the ongoing projects sold to Aseana, Ireka retains an indirect interest in the projects through its stake of about 23% in Aseana.

That is a valuable stake because interestingly, Aseana has a much larger market value than Ireka. On its first trading day, Aseana closed at US$1.04, or 4 cents above its initial public offering price. Aseana has a total market value of US$260.6mil, or RM900mil.

It was originally intended that Aseana would raise funds in pound sterling but it was later decided for the funds to be raised in dollars, which are more widely used than pounds in Vietnam. Aseana will invest in property projects in Malaysia and Vietnam.

With Aseana listed, Ireka has achieved its objective of unlocking the value of its ongoing property projects.



Value search



Analysts were busy searching for stocks with value as quality stocks rallied on the stock market.

In the property sector, CIMB Research initiated coverage on Penang-based Hunza Properties Bhd, which will develop the land where the Uplands school was, the last piece of freehold land along upmarket Gurney Drive.

Hunza will develop condominiums, a shopping mall and other commercial properties on that land. Its smallest condominium units would be 2,500 sq ft. And at a price that could be around RM435 per sq ft, slightly above those of existing condominiums in the area, it would start from about RM1.08mil each.

CIMB forecast Hunza to attain a compounded average growth rate of 50% in its net profit over three years, starting from the current year. It set a price target of RM4.00 for the stock, which closed at RM2.48 on Friday.

There was renewed interest in oil and gas (O&G) stocks recently following sector reports by AmResearch and Aseambankers. AmResearch noted that the industry was progressing towards the development stage where about 70% of expenditure was to be incurred, starting from now to 2011. This follows the discovery of 25 O&G deepwater fields from 2002 to 2005.

The sector also attracted foreign brokers. JP Morgan initiated coverage of shipbuilder Coastal Contracts Bhd last week with a price target of RM3.20, the highest among brokers.

The American investment bank likes the company's tripling of its capacity at a time when there is an acute shortage of offshore vessels. It also looks to an expansion of profit margins as Coastal moves up the value chain from tugs and barges to the higher value anchor handling tugs.

JP Morgan forecasts Coastal to be able to post earnings growth of more than 40% each year from the current year till 2009.

That is not surprising as Coastal has a track record of high growth and it was first featured in this column last year when it was then 42 sen a share.

In a separate note last week, JP Morgan raised its target price for Dialog Group Bhd, also an O&G stock, to RM2.85. It applied a price/earnings ratio (PE) of 30 times to its forecast of Dialog's net profit in its core business next year.

This high PE target of 30 times was made relative to Dialog's forecast earnings growth of more than 60% a year over the next three years. The stock was last traded at RM1.98.

Meanwhile, Merrill Lynch initiated coverage of Goldis Bhd as a deep value stock. It set a price target of RM3.05 against its price of RM2.23 on Friday.

Goldis is the holding company of IGB Corp Bhd in which its IGB stake accounts for two-thirds of Goldis' value. Merrill Lynch estimated that Goldis has an RNAV of RM4.09 a share based on its stake in IGB and a piece of land near Nikko Hotel in Kuala Lumpur.

During the week, Hwang-DBS Vickers Research initiated coverage on a Mesdaq stock, eBworx Bhd, which has more than 20 bank customers in seven countries for its software that integrates front-end processing with credit management.

The brokerage has a 12-month target of 83 sen for eBworx based on a PE of 10 times its forecast earnings next year. The company is also expected to achieve relatively high double-digit growth over the next three years.