An iconic waterfront development. Following the successful launch of Sutera Avenue in Sep 2012, MSGB has acquired another 9.3 acres of leasehold commercial land in Kota Kinabalu (KK) for MYR185m. Despite the premium pricing, we are positive on the acquisition given its strategic location. With a GDV potential of MYR1.4b, the development is expected to enhance our FY15 earning estimate by 1%. Our RNAVbased TP is raised to MYR3.89 (+4sen). Reiterate BUY.

Expanding its presence in Sabah. MSGB has signed a development agreement with Yayasan Sabah (YS) to acquire 8.3 acres of leasehold commercial land in Kota Kinabalu. It has also entered into a SPA to buy an acre of land contiguous to the project from Sasinma S/B. The project will be 51%-owned by MSGB, with the remaining stake held by local company Diverse Capital S/B. Total land cost is MYR185m (13.2% of estimated GDV; MYR163m for YS and MYR22m for Sasinma) or MYR455psf. The land will be paid for over a period of 42 months.

Strategic location justifies premium pricing. The land is located next to the Sabah International Convention Center (SICC; under construction) and near KK Suria Mall. It is 5km from Sabah’s state administrative centre and a short drive from high-end residential area, Signal Hill. The land cost of MYR455psf is 2.1x what MSGB paid for its Sutera Avenue land 3.5km away in Mar 2012. The premium pricing could also be due to: 1) the favourable payment structure for the land, 2) the scarcity of land in KK city centre, and 3) the fact that the premium for land conversion will be borne by the current landowner YS.

Earnings adjustments. Assuming a 5-year development period and pretax margin of 20%, we estimate a 0.5% enhancement to our FY15 net profit forecast. Our RNAV is raised to MYR3.89 (+4sen). Since the land will be paid for in stages over the next 42 months, the immediate impact to MSGB’s balance sheet is minimal. The latest acquisition will boost MSGB’s total landbank and total GDV by 1% and 6%.

Source: Maybank Research - 30 May 2013