Friday, December 03, 2010

My Top Stock Pick For A 1-3 Month View

We have had a very good run so far with my last pick, SP Setia, its still good, although I see possibly another 20% upside left in the stock from here. Time to pick the next best stock to hold for 1-3 month.

This is such a tremendously deep value counter, just don't know why local funds are not already rushing into the stock. In fact, long term foreign funds are already in the stock, and mind you, they have done their homework very well. Julius Baer and Franklin Templeton make up the prized shareholders in the company.

KSL is expanding into the Klang Valley, with its 446 acre Bandar Bestari @ Klang, and a 36,413sf plot just off Jalan Ampang, and second, it is looking to develop more recurring income from property investments. It targets half its landbank being in the Klang Valley in the future.

Positives and Catalysts: (1) Good proxy to IDR growth story; (2) new expansion to Klang Valley; (3) growth in recurring investment income; (4) deeply undervalued; (5) Bandar Bestari sales will kick in from 1Q2011; (5) KSL Mall current value alone is approximately the market cap of the company; (6) 2 research firms have recently visited the company and should be coming out with (what else) strong buy reports soon.

The Klang project alone is worth RM2.5bn, and this is a prime opportunity to start getting in Klang have yet to kick in as Bandar Bestari will be launched only in 1Q 2011.

Current landbank of 2,268 acres at 1Q10. About 1,117 acres is in the greater Johor Baru area, close or in the Iskandar Development Region (IDR), a further 705 acres are scattered in suburban areas in Johor, and 446 acres are in Klang.

In the core Johor area, KSL has five projects with RM2.3bn GDV. The first is KSL City (GDV RM300m, 7 acres), a mixed development with 600 condominiums in two towers, a 3-star 800-room hotel in two towers, and 350,000 NLA retail over four levels. The first block of flats is 60% sold, and the second is 30% sold. The retail is 80% tenanted at RM8psf and will be the largest in Johor Baru.

The other three are townships: Nusa Bestari (RM380m, 103 acres); Bestari Indah (RM780m, 493 acres); Kempas Indah (RM480m, 175 acres) and soon to be launched 1 Mutiara (RM330m, 99 acres). In addition, three commercial properties tenanted by Giant and Best Mart give recurring RM12m net profit pa.

The maiden project in Klang alone adds RM2.5bn GDV, doubling the company’s total GDV. Bandar Bestari @ Klang is a 446 acre plot just south of Bandar Bukit Tinggi. The GDV/acre is higher than in Johor. This land was bought for RM8.05psf in 2007. Recently, the company proposed buying a 36,413sf plot in Jalan Madge in the embassy area in KL for RM25.4m or RM698psf.

Insider/stake ownership 50.96%
 Premiere Sector S/B (Ku brothers) 37.47%
 Ku Cheng Hai 4.71%
 Ku Hwa Seng 4.47%
 Ku Tien Sek 3.15%
 Ku Wa Chong 1.16%
 Substantial shareholders 23.41%
 Lembaga Tabung Haji 8.83%
 Public Mutual (various funds) 5.06%
 Franklin Templeton (various funds) 5.02%
 Julius Baer 4.50%

2007 – Bonus issue 1:3, issued share cap 355.45m
 2008 – Share buyback 2.82m sh @RM1.01/sh avg.
 2009 – Share buyback 1.18m sh @RM1.12/sh avg. Issued
share cap 355.45m, treasury shares 4.14m.
 Mar 2010 – Private placement 35.1m sh @RM1.18, half of
which went to Templeton funds. Issued share cap 390.55m.

Net debt/equity: 9% (vs 16% in 4Q09)
 Long-term debt: RM119m (vs RM117m in 4Q09)
 Short-term debt: RM16m (vs RM20m in 4Q09)
 Cash/cash equivalent: RM64m (vs RM18m in 4Q09)

Area Price Value
(Acres) (RM/sf) (RM m)
Johor Baru 1,117 20.00 973.13
Klang 446 25.00 485.69
Segamat 463 4.50 90.76
Giant Hypermarket, Skudai 4 363.88 63.40
Muar 194 12.00 101.41
Giant Hypermarket, Muar 4 364.30 63.48
Batu Pahat 8 15.00 5.23
Mersing 19 5.00 4.14
Kluang 12 3.00 1.57
Pontian 1 12.00 0.52
Gross subtotal 2,268 1,789.32
Less: NBV of development land (31 Mar 2010) (820.87)
Add: shareholders funds FY09 730.00
Total 1,698.45
Issued share capital (m) 390.55
RNAV (RM/share) 4.35

Based on the company’s RNAV of RM4.35, KSL is trading at a 60% discount to RNAV, compared to the property sector average of 9%.

It is such an easy buy and hold stock. Markets have ignored this for too long. Local funds have under owned this for too long. Nobody who have held the stock would want to sell below RM2.50, including Mobius. I have set a RM2.60 target for 3 month and RM3.00 for 6 month. I believe with the focus on property stocks, KSL is a huge undiscovered pearl.

Coincidentally, today marks the opening of KSL mall, built for RM300m odd, already secured tenancy should bring annual rentals close to RM25m-30m, and apparently there was a strong buyer for the KSL Mall for RM500m offered last week. Bearing in mind the market cap of the company is only a bit over RM600m, and that the company has less than RM135m in debt, somebody should really take notice.

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.


jackie said...

wow dali dear, your post on KSL caused the volume to surge and gain of 7 cents today. well done. this is what me and my girls call 'the Dali effect' :) i will go out on a limb to say that your blog is the most influential stock investment blog in Malaysia now!! we luv ya

bill said...

true .. my remisier is giving me tips he read from this blog too ...

T816B said...

Very observant, jakcie. Every time when there is a post about certain counter, the effect can be seen from the transactions, almost instantly.

Dali wrote "We have had a very good run so far with my last pick, SP Setia, its still good, although I see possibly another 20% upside left in the stock from here.". Just wondering, is the 20% referring to SPSetia or SPSetia-WB?

If it is for SPSetia, 20% is a good potential of about RM 1.00 in value. If that translate to the same value of growth for the WB, it will be RM 2.55 (add RM 1.00 to today's closing of RM 1.55). That is matching the target for KSL of RM 2.60.

Gamelion said...

The private placement for
share capitalization of 390 million
is too excessive & it is greatly dilluted (stealing) the shareholding of the minorities.

sanghani58 said...

you are right but did you notice tabung haji was selling.

Salvatore_Dali said...

If idiots want 50% gain n not 150% gain whynot. Is lth a super investor??? Why the concern??? If Buffett starts to sell then worry otherwise they r only amatuers.

Polite Market said...

I fully agreed with you that KSL is a good buy. But I think SP Setia is quite fully value now, unless something big happen like merger etc.

Although KSL is good fundamental, in short term, the price may not necessary up.

Thanks for highlighting a very good counter. Let us now wait.

Polite Market said...

Don't worry too much on Tabung Haji selling. They are very actice in the stock market. I have seen after they sold, the price shot up.

For certain counters, EPF also buy and sell on the same counters.

twc said...

KSL is a real gem in the property sector-- strong fundamental and very under-valued! Dali, thanks for your indepth research.

jeremy tan said...

Hi Dali, any comments on the proposed renounceable rights issue of up to 97,636,871 warrants at an issue price of RM0.20 for each warrant on the basis of 1 warrant for every 4 existing ordinary shares

Paladin said...

Hi Mr Salvatore_Dali

Can i ask for your opinion on KSL because i am thinking whether to hold or sell KSL .
Do you think we have to avoid property stock now?