• Keep BUY, TP rises to MYR2.67 from MYR2.57, 29% upside with c.5% FY24F yield. Kerjaya Prospek has entered into a JV cum shareholder agreement with Aspen Vision Development (AVD) to develop 36 acres of land in Seberang Perai Tengah, Penang. This will be executed by the JV, via a heads-of-agreement signing with Railway Assets Corporation (RAC), which owns the land. We are upbeat on such developments, as this expands KPG’s property arm – its projects in the Klang Valley have a total GDV of c.MYR800m.

• The proposed development comprises 338 affordable houses, 1,680 residential units, 1,680 serviced apartments, commercial retail shops and offices. The land is located between the Perai River and Taman Inderawasih – offering direct connectivity to Butterworth, Bukit Mertajam and Penang Island – and can be accessed from the northern region via the North-South Expressway. More importantly, the land is close to Penang Sentral, which will feature the Penang Light Rail Transit (LRT) terminal in addition to the upcoming Juru-Sungai Dua elevated highway.

• Other details. As a consideration for sale of the 36-acre parcel of land from RAC to the JV, the latter shall provide MYR156.5m worth of returns comprising: i) MYR54.1m of cash returns, and ii) 338 units of affordable housing in accordance with Affordable Housing Category C3 specifications (estimated at c.MYR102.4m), which takes into account construction costs and costs associated with the relocation of current occupiers of the 36 acres of land.

• Timeline and profitability. This proposed project is expected to be completed in stages over a 7-year period. Based on our estimates, which assume that the ASP of the residential units and serviced residences is MYR500k (in line with prices of surrounding properties), total GDV of this development will be around MYR1.7bn. The JV also has a first right of refusal to develop the adjacent plot land spanning about 19.7 acres, for the next phase (which we exclude from our projections, at this juncture).

• We lift FY25-26F earnings by 3% and 5% to impute contributions from this upcoming proposed project (including a 15% PAT margin) while making no changes to our FY24 earnings forecast. This is because construction works may only start in the year-end. For our SOP valuation – we now include the proposed development (JV share: 55%, WACC: 8%) and ascribe a lower discount of 50% to its property RNAV (vs 60% previously), to reflect growth prospects related to Penang Sentral and Penang LRT. As a result, our SOPbased TP rises to MYR2.67 from MYR2.57, with a 2% ESG premium baked in. We like KPG for its robust job flows in Penang and the Klang Valley, which underpin the group’s 3-year (FY23-26) earnings CAGR of 14%.

• Downside risks: A property market slowdown and prolonged cost pressures.

Source: RHB Securities Research - 12 Nov 2024