Friday, October 09, 2009

Why I Like Bandaraya (Not Dewan Bandaraya)

Recent research reports on Bandaraya have been focused too much on the tapering demand for high end luxury condos, which rightly would delay some of their upcoming project launches. That would be quite short sighted. The other negative would be the Mieco Chipboard situation, and actually there is little downside now that the "loan" has been put in place.

Investment properties / (sf) Status
CapSquare Retail 180,000 In operations
Bangsar Shopping Centre Retail 330,000 End 2009
BSC Office 223,000 End 2009
BSC Car park 1,000
Permas Jusco Retail 171,817 In operations
Permas 1 mall Retail 91,000 vacant
The Troika Office 54,800 2010
The Troika Retail 42,795 2010

Property development projects / GDV (RMm) % sold Projects under construction
The Troika near KLCC 850m 75% High end condo
One Menerung @ Bangsar 760m 87% High end condo
CapSquare Tower II 432m 100% Office
Upccoming launches
Capital Square Residences II 220m na High end condo
Taman Duta KL 700m na High end condo
Sublot 132 Bangsar KL 719m na High end condo
Hartamas Sanctuary 600m na Mid market condo
Cap Square North & South Tower 250m na Office

The revenue stream for the rest of the year will be supported by its high unbilled sales. BRDB will continue to register some commendable earnings growth in most of FY09. However, should there be no meaningful amount of sales being made soon, this figure will be very much exhausted by late FY09 once the Troika and One Menerung are completed. Property development, with RM609m unbilled sales, should deliver higher profits. With a visible pick-up in interest since Jun (1HFY09: new sales: RM40m), BRDB is confident of selling the remaining 20, 50 and 5 units at One Menerung, Troika and CapSquare Residences I respectively by end 2010. It is planning to launch 2 new projects - CapSquare Residences II and Hartamas Sanctuary - in 2010. Hence the fear of lesser revenue going into 2010 may be too cautious.

As of Jun 2009, BRDB had net debts of RM521m (or net gearing of 34%). This will rise further with another RM200m loan from Maybank on 23 Jul 2009 to part finance the construction of Office Tower 2 (OT2) in Capital Square. Looking deeper, its financials should start to improve in 2011 after it delivers OT2 to Union Investment Real Estate AG which bought it for RM432m. In addition, it could see higher income of up to RM90m p.a., when all its investment properties are in stable operations in 2013.

The uncertainty surrounding Mieco as a going concern is markedly reduced with the restructuring of its RM150m loans and better business outlook, no adjustment is now needed for BRDB’s carrying value of its investment in Mieco (RM116m) and amount due from Mieco (RM22m). The worst appears to be over but Mieco will still in the red in FY09 due to fixed costs of Plant 3 which has been temporarily shut due to low demand. This is good news as Mieco was dragging the focus away from its fundamentals.

The kicker, which most analysts have kind of cast aside was their recent venture in Oman. Many are skeptical with any kind of Middle East type property deals, especially if they were signed over the past 2 years. BRDB only entered into an agreement in recent weeks week for the proposed development of an integrated real estate tourism project on about 98.84 acres in Oman through Amouage Hotels & Resorts LLC, Oman. BRDB will be acquiring a 30% stake in Amouage, the JV vehicle, from its shareholders, Mamas Loizou and Mohammed Saleh, for RM423,000 cash.

BRDB will be acquiring a 15% stake in Amouage, the JV vehicle, from each of the 2 Middle Eastern partners. Amouage in turn holds about 60 acres of leasehold seafront coastal land and the right to reclaim some 39 acres from the sea. The acquisition by BRDB will not involve any payment for land cost while the development costs for the project will be funded by BRDB. The Middle Eastern partners will in turn assist in the processing and procurement of the relevant approvals and licences for the land and the development project. Profit sharing is based on their respective shareholding in Amouage. Although the land is on a leasehold basis, the land title can be immediately converted to freehold once the properties are sold. Amouage has obtained approval to develop the land into an integrated real estate tourism related project which has been granted conditional Integrated Tourism Complex (ITC) designation by the Omani Government. The ITC concept was established to promote tourism in Oman, a designation which allows foreigners to buy and own freehold properties in the country.

Subject to the relevant approvals, the tentative GDV of the entire project is estimated at RM2bn. The development will mainly comprise condominiums, commercial units and a hotel. The first phase is expected to be launched in 9-12 months’ time. No analysts have imputed any earnings from this. The downside is almost non-existent as BRDB’s participation does not involve any payment for land cost, the holding cost will be minimal, which minimises the developer’s investment risk in the JV.

Net gearing (%) – Jun 33.5
NTA (RM) – Jun 09 3.26
Interest cover (x) 3.9
Shares issued (m) 476.4
EPS (sen) 2007-2010: 14.6 (07); 21.7 (08); 21.9 (09 estd.); 24.1 (10 estd.) - Oman project not included in 2010 estimates.

At 21 sen-24 sen EPS, BRDB has no reason to stay below RM2.00 especially when its RNAV is closer to RM4.00.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

p/s photo: Reiko Azechi

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