We attended SBC and Suria Capital’s loan signing ceremony and preview event of the Jesselton Quay (JQ) project last Friday at the penthouse of The Peak Vista. The loan, totaling RM240m, is obtained from RHB Bank, and will be used as working capital and bridging loan for the Group’s RM1.8bn gross development value (GDV) JV with Suria Capital Holdings Berhad (Suria) to develop a 16.25-acre sea-fronting land, which went unconditional on the same day. With the JV signed, SBC’s total GDV will leapfrog from RM3bn currently to RM4.8bn. We estimated SBC’s fair value at RM1.90 by assuming 10% PBT for the JQ project, which could on the low side if the appetite for high-end in KK is indeed better than our expectations. The high average selling prices (touted >RM1000psf) are possible, given the great location of the said land and welldesigned master plan. Every 10% increase of PBT margin would bump up our RNAV by RM0.49.

JQ (Figure 1) will consist of mixed properties including retail commercial spaces, premium offices, waterfront serviced residences, waterfront business hotel and world class marina facilities with RM324m (or 18% of GDV) payable to Suria as land cost, which will be paid progressively. We understand that the site is a natural harbour known to be the gateway to North Borneo in the early days. We believe that given the great location, JQ has the potential to be the next up-and-coming address to watch for, given its proximity to Kota Kinabalu CBD, the international cruise terminal and the future KK convention center.

Expect Phase 1 by end-2014. We understand that the Group has engaged the architect for JQ, with the first phase to be unveiled possibly by July. The masterplan is essentially modeled after waterfront developments such as Victoria & Alfred Waterfront in South Africa and Marina Bay in Singapore, with a touch of nostalgic elements similar to Xintiandi in Shanghai. The average selling price starts from RM1000psf, with the RM500m GDV for the first phase. We saw a few projects under construction during the visit and understand that the condominiums are priced at more than RM1000psf already. As highlighted in our earlier report, we are of the view that demand risk remains considering high average selling prices. That said, we came away more assuaged after seeing the masterplan concept, which we think has the merits to transform JQ into a wonderful waterfront development.

Fair value RM1.90 (c.50% discount to RNAV), with the JQ contributing c. RM0.49 (assuming 10% PBT) to our estimated RNAV of RM3.70. Every 10% increase of PBT margin would bump up our RNAV by RM0.49.

Source: PublicInvest Research - 19 May 2014