Formation of New JV to Develop 36 Acres in Seberang Perai, Pulau Pinang

KERJAYA's wholly-owned subsidiary, Futuprop Sdn Bhd (FSB), has entered into a joint venture (JV) and shareholders' agreement with Aspen Vision Development Sdn Bhd (AVD) to establish a new special-purpose vehicle, Rivanis Ventures Sdn Bhd. FSB and AVD hold stakes of 55% and 45%, respectively, in this venture. Subsequently, the JV signed a Heads of Agreement with Perbadanan Aset Keretapi (Railway Assets Corporation, RAC) to undertake a development project on a parcel of land in Seberang Perai Tengah, Pulau Pinang.

Under the terms of agreement, the JV will acquire the land from RAC—a federal statutory agency responsible for managing, administering, and maintaining Malaysia's railway assets—to develop the site in two phases. Phase 1 will involve the development of 36 acres, featuring 338 affordable housing units, 1,680 residential units, 1,680 serviced apartments, and commercial retail spaces, including shops and offices. Additionally, the JV holds the first right of refusal to develop an adjacent 19.8-acre parcel for Phase 2.

The land acquisition for Phase 1 is valued at RM156.5mn, to be settled through a cash payment of RM54.1mn, alongside the provision of 338 affordable housing units valued at a total of RM102.4mn, which are allocated for the relocation of current occupiers.

Phase 1 is expected to commence by end-20224 and is slated for completion within seven years.

Our View

We view this new partnership positively, as it aligns with KERJAYA’s strategy to strengthen its property development capabilities over the coming years. This project also supports the company’s timely landbank expansion efforts, following the successful launches of Vista Residences @ Genting Highlands (GDV: RM300mn), The Vue @ Monterez (GDV: RM300mn), and Papyrus @ North Kiara (GDV: approximately RM500mn) in January 2016, June 2022, and March 2024, respectively. The Phase 1 project is estimated to yield a GDV of RM1.5bn. Notably, the property division’s contribution made up 6.3% of the group’s net profit in 1HFY24 (from 3.0% in FY23), and this new project is anticipated to contribute significantly to the group’s earnings by FY26, assuming a launch in FY25.

The land cost of RM156mn represents c.10.4% of the total GDV, based on an estimated GDV of RM1.5bn — well below the typical 20% benchmark and indicating a favourable land cost-to-GDV ratio. Furthermore, the acquisition price of RM99.80psf is 5% higher than Skygate Solutions Bhd’s (formerly Ewein Bhd) purchase of 9.7 acres nearby at RM94.70psf in September 2023. However, we consider this premium reasonable, given the land’s strategic location within a 15 km radius of Penang Sentral, a major transportation hub for the upcoming Penang Light Rail Transit, and the planned Juru-Sungai Dua Elevated Highway. These factors position the development to benefit substantially from regional growth.

In terms of funding, KERJAYA’s robust balance sheet, with a net cash position of RM251.4mn as of end-June 2024, should sufficiently support the project development and potential future landbank expansion plans.

Forecast

We are maintaining our earnings estimates unchanged, pending further details to be provided at the analyst briefing on 29 November 2024.

Valuation

We reiterate our Buy recommendation on the stock with an unchanged target price of RM2.79, based on 18x CY25 EPS and 3% ESG premium given our 4- star rating. We continue to like KERJAYA for its:- (i) solid earnings visibility, (ii) consistent and robust replenishment of its order book and (iii) the potential growth in industrial property construction leveraging the partnership with Samsung.

Source: TA Research - 12 Nov 2024