Tuesday, February 08, 2011

YTL Land Is Top Pick For 1Q2011

As investors start to gather back to watch their screens, we all wait with hope and trepidation. The easy money run through December and January seems to have petered out towards the last 2 weeks before CNY. While many still harbour hopes of a good run after the holidays, many are still waiting for further confirmation that the bull run is intact.

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After having so much free time to read through reams of research, share price movements over the holidays, I am glad to say that I have found one stock that still presents enormous upside despite its sharp run up in 4Q2010.

YTL Land, here's the short version if you don't feel like reading any further. Under covered stock, only ONE house has issued a report over the last 3 months. If we consider the numerous property counters that have gone sky high, you will find that YTL Land presents possibly the best portfolio, landbank and valuation.

While many have been lauding the property plays that are beneficiaries to the expanded MRT, no one will have the better exposure than YTL Land. It will be the biggest beneficiary of MRT given strategic landbank in Sentul, KLCC-Bukit Bintang & KL Sentral.

There is still a corporate exercise pending which should be going ex-all by 1Q2011. The deal will almost double its potential paid up/shares but the landbank injection will more than make up the prospects going forward. It will transform into regional developer with YTL Corp’s injection of prime land in KL & Singapore. If they did not do that, YTL Land would not have the scale and stir sufficient interest as a genuine branded developer with regional aspirations.

The bulk of attention centers on Sentul. The early concept for that master plan development stemmed from the Sentul KTM Komuter station and its tracks which split the 294-acre land. Sentul is located 5km north-west from the heart of Kuala Lumpur and 45 minutes from KLIA. The MRT is the "killer app" so to speak.

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Executive director Datuk Yeoh Seok Kian unveiled Sentul's first commercial development - d7, a seven-story block comprising 20 retail stores on the ground floor, 78 office suites and 34 duplex offices in Sentul West. The project is completed and 100% sold. Another project d6, on Sentul East, is being planned. A sky bridge connects the two. d7 was launched at RM380 per sq ft a few years ago. It is expected to be priced about RM650 per sq ft in the secondary market. Rental rates are between RM3.50 and 4.00 per sq ft.

Yeoh says the company will build residential and commercial projects with a total sales value of about RM8bil over the next seven years. That location will be among YTL Land's largest property development. The plan was to characterise the two halves differently. Over time as Sentul West becomes more established, the community is likely to be more senior and relatively more sedate, compared with the community in Sentul East which will cater more to the up-and-going younger group of people living there.

Spanning 186 acres, Sentul West will be the crown jewel of the location comprising a 35-acre private park and residences, offices and retail shops. Sentul East, which spans 108 acres, with all its vibrancy, will set the tone for modern downtown living. Work started on that site in 2002, beginning with The Tamarind in Sentul East and subsequently The Maple in Sentul West - but that was before the better transportation infrastructure.

Sentul Link also provides access to Jalan Sentul and Jalan Ipoh by connecting Jalan Mahameru at the intersection of Jalan Kuching.

Say what you like but YTL property projects are usually not one-off, it comes with careful planning, continuous value add to the surroundings, a master of regeneration of public spaces and niche locations. We all have seen the transformation along Jalan Bukit Bintang from a near Petaling Street chaos to an Omotesando feel.

The regeneration of Sentul is not just about renewal of the physical environment and wealth. It is also about the renewal of its community, their access to local services and their relationship with the area and the people that live and work there," he says.

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YTL Land, which has a market capitalisation of about RM1.5bil, currently has a land bank (with no holding costs) of over 2,000 acres with a sales value of about RM12bil. May I repeat this here, no holding cost.

YTL Land has the biggest exposure to potential MRT interchanges (66% of RNAV) through its landbank in Sentul (119 acres), KLCC-Bukit Bintang (5 acres), and KL Sentral (5 acres). With potential stop(s) on the MRT Circle Line in addition to existing LRT and KTM stations, Sentul could turn into a major interchange with direct train to KLCC (just 3-4 stops away). This should significantly re-rate property values in Sentul, especially land (RM150psf vs KLCC’s RM2400psf).

Size does matter. Parent company YTL Corp is in the midst of injecting prime land in KL (KLCC-Bukit Bintang, KL Sentral) and Singapore (Sentosa Cove, Westwood Apartments in Orchard Road) into YTL Land for a reasonable RM476m (to be satisfied by cash and ICULS). Upon completion, YTL will transform into a regional player with track record in high-end residential and a bigger balance sheet. Although net gearing could increase to 1.45-1.8x from 0.2x currently, progress billings from the S$468m Sentosa Cove (substantially sold) should pare down borrowings quickly.

YTLL has a fully diluted RNAV of RM2.80-RM3.00 now. The successful launch of Capers high-end condos in 1Q11 at RM700psf should help re-rate Sentul, with implied land price of RM500psf. Many expect Sentul land values to appreciate to RM1000psf within the next 3-5 years, driven by MRT, higher ASP and plot ratio expansion. Along with higher land prices for KLCC-Bukit Bintang and KL Sentral, this would boost YTLL’s RNAV to RM4.10, according to HwangDBS. I do agree that the gap will narrow as we get nearer to ex-all date, which is why I think RM3.00 is an easy target.

RNAV is one thing if the projects are not launched at sufficient speed to be reflective in EPS growth. Here lies YTL Land's transformation from a sleepy developer. HwangDBS expects exponential earnings growth (3-year CAGR: 54%) on the back of a more aggressive launch pipeline & margin expansion for Sentul. There could be potential upside as we have yet to factor in contribution from YTL Corp’s asset injection.

YTL Land owns ~170 acres in KL City, comprising of Sentul (119 acres), KLCC-Bukit Bintang (5 acres), KL Sentral (5 acres), and Pantai Dalam (38 acres). YTLL is also the project manager for YTL Corp’s Lake Fields and MidFields residential project at Sungai Besi (entitled to 10% share of GDV). It is the master developer of the 294-acre Sentul, which is located less than 5km away.

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Ripe for re-rating. Sentul’s land price is currently at a depressed RM150psf vs KLCC’s RM2400psf (RM38psf ppr vs RM240psf ppr). Many expect Sentul’s land values to leapfrog by 500% to RM1000psf within 5 years (46% CAGR), on the back of:

a) Potential major interchange with stop(s) on Circle Line. Sentul is already a multi-modal interchange for LRT and KTM. With the MRT, Sentul will turn into a major interchange with direct trains to KLCC on the Circle Line. This should significantly re-rate property values in Sentul, which are currently transacting at RM500psf vs KLCC’s >RM1000psf.

b) High density mixed development. As a major interchange, Sentul should benefit from higher traffic, which encourages high density mixed developments. Sentul East currently has only two commercial developments i.e. D6 and D7 which are less than 10-storeys (there are still three plots yet to be developed).

c) On-going urban renewal. Sentul has the potential to be the next KL Sentral, which is a good case study of successful urban renewal with transportation hubs. YTL Group has a strong track record in urban rejuvenation i.e. Bukit Bintang, Pantai Dalam near Bangsar, Lake Fields@ Sungai Besi, and now Sentul.

d) Plot ratio revision. Under the Revised KL Draft Structure Plan, Sentul’s allowable plot ratio will be raised from 2.5x to 4x. This should increase net saleable area for Sentul West alone by 57% to 16m sf. Even at 4x, we believe Sentul has one of the lowest plot ratios in KL for high density developments. We do not discount the possibility of plot ratios being raised further (possibly to 6x) given:

(i) Sentul is among the last large contiguous parcel of undeveloped land near KLCC;
(ii) strategic location just 10-15 minutes by car or 3-4 stops by MRT (direct train on the Circle Line) to KLCC; and
(iii) urban renewal in progress.

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Based on RMpsf ppr, expected growth should be a more modest 344% ie from RM38psf ppr to RM167psf ppr (5- year CAGR of 35%) – still a significant discount to KLCC’s RM500ppr and KL Sentral’s RM292psf ppr.




Based on a plot ratio of 4x, ASP of RM700psf would imply a land value of RM500psf (assuming 25% pre-tax margin, gross construction cost of RM300psf) - significantly higher than the current asking price of RM150psf around Sentul.

Although net gearing may increase to 1.45-1.8x post completion of the entire exercise (including refinancing of S$448m advances made by YTL Corp for the acquisition of Westwood Apartments previously), progress billings from Sentosa Cove can be used to pare down borrowings fairly quickly. The S$468m or RM1.1b GDV project is already substantially sold and in advanced stage of completion (delivery by end-2011). The redevelopment of Westwood Apartments (acquired en-bloc in end-07) will have a GDV of S$728m (ASP S$3400) consisting of hotel and serviced apartments.

Media Releases:
(YTL Land) has sold all 343 units in the second
phase of its Dale residential enclave in Sungei Besi in the Klang Valley
way ahead of launch.
The Dale preview on Aug 25 for buyers and registrants at Starhill
Gallery, Kuala Lumpur, saw more than 50 per cent of the units sold by the
second day and the rest snapped up before the end of the preview on the
fourth day.
Priced between RM638,800 and RM1.33 million, Dale has set both a new
price standard for homes in Sungei Besi and demonstrated the area's
potential as KL's next property hotspot.
Property developer, YTL Land and Development Bhd will launch its iconic condominium, "The Capers" in Sentul East in the first quarter of 2011, its customer relation's manager, Karen Tan, said. The stunning architectural icon comprising two 36-storey towers interrupted at random with sky gardens and flanked by two five-storey low-rise duplex townhouses, will definitively be a statement of loft living, she said.

However, she could not divulge the project's gross development value as it was still being assessed but added that the iconic condominium was set to change the face of the 100-year old former railway town that was now a draw for the young modern crowd. Two other condominiums in the area, built by YTL Land, are "The Tamarind" and "The Saffron", completed in 2005 and 2008, respectvely.

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A total of 5,000 buyers have expressed thier earnest enthusiam by registering for units in the project, she told a press conference to announce the completion of the first office project in Sentul West and Sentul East, called "d7". d7, is a seven-storey architecture and cutting edge duplex sky office, located on prime land, which boosts of boutique offices, retail, food and beverage outlets encased in a lush landscaped courtyard atrium area. Karen said "d7", which was completely sold out, had appreciated by more than 40 per cent since its debut in September 2007.

The launch price for "d7" then was RM380 per square feet and today it is valued at RM650 per square feet. "d7" will soon be connected to "d6" via a sky bridge stretched over Jalan Sentul and the elevated Sentul Skywalk will connect all of Sentul East developments in the future to provide convenience to the community.

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. 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.



4 comments:

kwong72 said...

Westwood Apts in SG is really a dud.
It is the highest price ever paid for enbloc land at the peak of 07-08SG property bubble.

I doubt the redevt can be sold at profit for next 5 years. It will be a drag on YTL Land.

BTW I am from Singapore.

soonyeah said...

How does it compare with E&O ? It has a short run past days.

E said...

Has anyone wondered if YTL Land has a land bank worth RM12billion sales value, why are they not trying to just sell the land and make a nice quick profit?

Surely this must be one of the options to be evaluated by the management? And if you look at time value of money, getting the huge profit in such a short time should give this option a very high NPV as compared to the option of developing the land slowly like what they have been doing in the past 3-5 years.

Also, I would have thought if the company does things nicely and slowly, it would be able to command a good margin but its PBT margin for the last 4 quarters was only about 11% (source: Q4 FY2011 qty report). http://announcements.bursamalaysia.com/EDMS/edmsweb.nsf/ba387758ae37412b482568a300466fb6/695b853859241327482578f7003949ba/$FILE/YTLLD%204Q-300611%20(Final).pdf

If you look at Table 4 in Sunway Berhad's IPO document on page 77 most other property development companies in the list were able to command PBT margin of higher than that. (http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/3769eb5bc3583594482578f000048578/$FILE/SUNWAY-Cover%20to%20Page%20190%20(2.9MB).pdf)

Can someone educate me please?

jason haris said...

Hi Salvador,
I loved reading this piece! Well written! :)

jason
rescue my pension