Penang s Property Market Is Set To Buzz

Size: px

Start display at page:

Download "Penang s Property Market Is Set To Buzz"

Ronald Daniel
6 years ago
Views:

1 Sector Update, Real Estate Penang s Property Market Is Set To Buzz Overweight (Maintained) Macro Risks Growth Value Loong Kok Wen CFA loong.kok.wen@rhbgroup.com Our positive view on Penang was reinforced by our recent site visit. Apart from the BPO hub spearheaded by the State Government, we are impressed with the Penang Second Bridge (PSB) infrastructure and the upcoming developments in Batu Kawan that involve some reputable regional companies. While Tambun Indah is the key beneficiary, Global Oriental and Malton are alternative Penang mainland plays. What has changed? The PSB was opened on 1 March. While traffic volume is still low, we are confident it will pick up given Batu Kawan s potential upcoming new developments. In five years time, an IKEA/Ikano shopping mall, a premier outlet, and the campuses of the University of Hull and KDU University are expected to start operations there. Penang an upcoming business process outsourcing (BPO) hub. Penang is set to become Malaysia s new BPO hub. Given the number of multi-national corporations (MNCs) there and the growing number of factories on the mainland, this hub will be able to provide greater support as well as drive the Penang s business activities. Last month, two IT- BPO hubs totalling MYR3bn were launched on 74-acres in Bayan Lepas and 7 acres in Bayan Baru. The expected 30,000 new jobs created will have a positive spillover effect on the property sector. Batu Kawan in for more excitement. Investors should expect more to come in Batu Kawan. Based on our talks with industry players, some sites have been allocated for specific developments involving a Singaporean company. In addition, the tenders for the golf course and theme park land are likely to be announced over the next few months. We expect record land pricing for these projects. Tambun Indah the key beneficiary, Global Oriental (GOB) and Malton the alternative plays. Owing to its 600-acre Pearl City township and ready products, Tambun Indah is the key beneficiary of investment inflows. GOB and Malton are alternative mainland plays given their 350 acres and 300 acres respectively in Batu Kawan. Eastern & Oriental (E&O) s Seri Tanjung Pinang 2 (STP2) on track. E&O has just received its conditional approval letter from the Department of Environment (DOE). A traffic impact assessment study will then be submitted to the State Government in end-april. The final nod from the latter is on track to be received by June. Focus on Penang. We like Penang property stocks. Tambun Indah and E&O are our favourites. P/E (x) P/B (x) Yield (%) Company Name Price Target Dec-14F Dec-14F Dec-14F Rating Eastern & Oriental MYR2.46 MYR BUY Glomac MYR1.13 MYR BUY Hua Yang MYR1.80 MYR BUY IJM Land MYR2.98 MYR BUY IOI Properties Group MYR2.75 MYR BUY Mah Sing MYR2.25 MYR BUY Matrix Concepts Holdings MYR4.16 MYR BUY Paramount Corp MYR1.70 MYR BUY SP Setia MYR2.95 MYR TRADING BUY Sunw ay MYR3.03 MYR BUY Tambun Indah Land MYR1.95 MYR BUY UEM Sunrise MYR2.28 MYR TRADING BUY UOA Development MYR2.21 MYR BUY Source: Company data, RHB estimates See important disclosures at the end of this report Powered by Enhanced Datasystems EFA TM Platform 1

and Batu Maung on Penang Island. The bridge officially opened on 1 March.

2 Penangites Get Busy Penang Second Bridge We recently visited Penang for some ground checks on the latest developments in the state. We also took the opportunity to drive through the 24km long PSB which is also known as the Sultan Abdul Halim Muadzam Shah Bridge to experience the journey from the North-South Highway to Batu Kawan and Batu Maung on Penang Island. The bridge officially opened on 1 March. From the North-South Highway, it took us less than 20 minutes to travel to Batu Maung via Batu Kawan, partly also because traffic volume on the bridge was light. Based on our observations, there were more heavy vehicles on the bridge, largely due to the closer distance to the Bayan Lepas industrial zone from the North-South Highway while, at the same time, taking advantage of the toll-free period in March. We are confident that traffic volume will pick up given the upcoming new developments that will take place in Batu Kawan. In five years time, an IKEA/Ikano shopping mall, a premier outlet, and the campuses of the University of Hull and KDU University are expected to start operations there. The bridge has a capacity to handle 100,000 vehicles daily. Our visit reinforced our positive view on Penang. We are upbeat on the State Government s efforts to continue to bring in local and foreign direct investments. From our trip, we found out there are more in the making, and will result in rising job opportunities and economic activities. All these will spill over into the property sector, particularly on the mainland, where house prices are still at a lower base. Figure 1: Exiting the North-South Highway to the PSB Figure 2: Sign boards showing the traffic flow for the first and second bridges along the North-South Highway See important disclosures at the end of this report 2

3 Penang State Government directs energy into BPO hub The Penang State Government has started promoting Penang as an upcoming BPO hub. Given the number of MNCs in the state and the growing number of factories on the mainland, it makes sense for Penang to position itself in this segment. According to Invest Penang, BPO services include: i) customer operations, ii) data processing, iii) back office administration, iv) accounting, v) technical support, vi) transcription, software development, vii) IT consultancy, and viii) disaster recovery services. The hub will help corporations in Penang to take advantage of this globally-accepted business model, thus allowing them to focus on their core competencies. In early March, two IT-BPO centres worth MYR3bn were launched. These were a 74- acre site in Bayan Lepas right next to the airport and 7 acres in Bayan Baru, next to the Subterranean Penang International Convention and Exhibition Centre (SPICE). These land parcels, currently owned by Penang Development Corp (PDC), will house about 2.4m sqf of high-grade office towers within an integrated property development, as well as a World Top 100 university. We also understand that a Singapore Government-linked company will be in charge of the operations, which will be benchmarked to international standards. The BPO hub is expected to create 30,000 new jobs. Figure 3: Upcoming plans for Penang s island and mainland Source: Invest Penang See important disclosures at the end of this report 3

4 Batu Kawan still the hot spot Meanwhile, things are taking shape nicely on the mainland. Compared to our previous visit six months ago, there are now more ongoing construction works, including works on the Haemonetics Corporate plant at the Batu Kawan Industrial Park (BKIP), as well as the PDC s new sales gallery (largely been completed) and ongoing earth works on the 11,800 affordable homes co-developed by PDC and Singapore-based Surbana Corp a subsidiary of Singapore s Housing and Development Board. The mainland has been a hive of good news since 2H13. The most exciting piece of news was the January announcement of the investment by Aspen-IKANO to set up an IKEA outlet in Batu Kawan. Based on our discussions with some property players and our close study of the Batu Kawan master plan, some sites have been allocated for specific developments. We expect more news over the next few months as we believe the tenders for the 450-acre golf course and 215-acre theme park projects will be awarded soon. Eco World Development (ECW MK, NR) has been speculated to be the winner of the bid for the golf course land overlooking the sea. Meanwhile, we understand that a Singapore Government-linked company will likely take part in a development covering 250 acres of land next to the IKEA site. This company is also said to be involved in the BPO hub in Bayan Lepas and Bayan Baru, as mentioned earlier. We expect record land pricing for these new projects, especially Eco World Development s bid for the golf course land. Currently, the industrial land plots at BKIP are going at MYR50-55 psf while recent transactions in Batu Kawan have achieved MYR45-55 psf. Upcoming linked homes that will be launched by GOB will likely be priced at MYR460, ,000 each. The value of land in Seberang Perai Selatan has roughly risen by % over the past two years and we believe the uptrend will continue given the growth momentum driven by various catalytic developments. We expect the growth trajectory to be similar to what we witnessed in Iskandar Malaysia in the past, where land prices have risen 3-5x over a period of 4-5 years. Figure 4: Chronology of major events in Penang Date Event Land area (acres) Land cost (MYR psf) 24-Aug-13 E&O's public forum on Seri Tanjung Pinang Sep-13 The University of Hull to open a franchised main branch campus in Batu Kawan 5-26-Sep-13 Paramount to set up a new KDU University at Batu Kawan Oct-13 PE Land SB and CBRE to set up a premier shopping outlet at Batu Kawan Dec-13 GEMS to set up the first international school in Malaysia at Tambun Indah s 8 35 (net) Pearl City township 10-Jan-14 Aspen-Ikano JV to set up IKEA outlet, including some mixed developments Source: Various, RHB estimates See important disclosures at the end of this report 4

Figure 5: Batu Kawan zone 1. IKEA outlet 10 2. Paramount s KDU University campus 3.

GOB s residential enclave (350 acres) 6. Proposed golf course 7. Proposed theme park 5 8.

Direction to Tambun Indah s Pearl City 7 3 2 8 1 4 9 Source: Invest Penang Figure 6: Earth

5 Figure 5: Batu Kawan zone 1. IKEA outlet Paramount s KDU University campus 3. Penang premier shopping outlet by PE Land and CBRE 6 4. Malton s commercial hub (300 acres) 5. GOB s residential enclave (350 acres) 6. Proposed golf course 7. Proposed theme park 5 8. IT Park involving a Singapore-linked company 9. Batu Kawan Industrial Park 10. Direction to Tambun Indah s Pearl City Source: Invest Penang Figure 6: Earth works for affordable homes Figure 7: Ongoing construction of Haemonetics plant See important disclosures at the end of this report 5

Figure 8: The proposed golf course site Figure 9: Basic infrastructure is ready - Malton s commercial component (left) and IKEA s site (right) Figure 10:

The highly-anticipated approval from the DOE for the detailed environment impact assessment (DEIA) study and conceptual master plan for the proposed

We expect the final nod to be given by June.

It will also be the largest beneficiary of the State Government s MYR6.

6 Figure 8: The proposed golf course site Figure 9: Basic infrastructure is ready - Malton s commercial component (left) and IKEA s site (right) Figure 10: Boon Siew s Honda plant Figure 11: BOSE s factory E&O in the final stage of obtaining approval E&O has achieved another remarkable milestone. The highly-anticipated approval from the DOE for the detailed environment impact assessment (DEIA) study and conceptual master plan for the proposed reclamation of STP2 was received on 10 April. E&O will next submit a traffic impact assessment study to the State Government in end-april. We expect the final nod to be given by June. Upon obtaining the green light from the State Government, E&O will emerge as the largest landowner on Penang Island. It will also be the largest beneficiary of the State Government s MYR6.3bn infrastructure investments, particularly given its 980-acre land in STP1 and 2, which is near Gurney. The state s infrastructure plans include a 6.5km sea tunnel connecting Gurney-Butterworth. As such, the properties in Gurney/Tanjong Bungah on the island, as well as those in the northern mainland area of Seberang Perai Utara, are likely to enjoy a positive spillover in the longer term. See important disclosures at the end of this report 6

7 As land is typically scarce on Penang Island, land prices naturally hold up strongly. We note that a 9-acre land on STP1, valued at MYR777 psf by the State Government has been granted to Consortium Zenith BUCG the company that is undertaking the state s infrastructure projects to finance the cost of feasibility studies and detailed design works for the undersea tunnel project. Given the potential upside in land value compared with our market value assumption of MYR360 psf in our RNAV estimate, we see strong potential in share price re-rating once STP2 is officially and finally approved. Another 1,500-acre Middle Bank reclamation project? Another reason why we are confident that E&O will receive final approval for its STP2 project is because the State Government has recently started kicking off another mega reclamation project. In a move to address the issues of rising land cost and the limited availability of development land on the island, the PDC has proposed to reclaim 1,500 acres of land in Selat Penang, ie the channel between the island and Butterworth on the mainland. In February, the State Government called for a request for proposal (RFP) for a project management consultancy cum conceptual master planning consultancy. As some portion of the new island will be facing IJM Land (IJMLD MK, BUY, FV: MYR3.70) s The Light, we believe the company is likely to be keen to take part in the project. In our view, as this proposal may take years to materialise, considering that STP2 may take 7-8 years from the start till the completion of reclamation works, it may be too early to quantify the actual impact of this Middle Bank reclamation project on Penang Island s property sector. Nevertheless, this will certainly create more news flow on Penang from time to time. Figure 12: Preliminary location of the Middle Bank reclamation project Source: PDC Valuations We remain positive on Penang property stocks in view of the vibrant news flow and incoming investments. Given the lower base effect, as well as the affordable house prices, we believe property price growth on the mainland will outperform that on the island. Due to the substantial price gap, the demand for housing has gradually shifted to the mainland, and Batu Kawan and the Seberang Perai Selatan area will see gradual urbanisation in the coming years. Tambun Indah has been seeing brisk sales since two years ago, and we are confident that upcoming launches by both Tambun Indah and GOB will be well received. Among West Malaysia s three key property markets of Penang, Klang Valley and Iskandar Malaysia, Penang is our clear favourite. We continue to like E&O and Tambun Indah. See important disclosures at the end of this report 7

8 RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or financial advice to independently evaluate the particular investments and strategies. RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to, or dispose off, or may be materially interested in any such securities. Further, RHB, its affiliates and related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity mentioned in this research report. RHB and its employees and/or agents do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or damages that may arise from any reliance based on this report or further communication given in relation to this report, including where such losses, loss of profits or damages are alleged to have arisen due to the contents of such report or communication being perceived as defamatory in nature. The term RHB shall denote where applicable, the relevant entity distributing the report in the particular jurisdiction mentioned specifically herein below and shall refer to RHB Research Institute Sdn Bhd, its holding company, affiliates, subsidiaries and related companies. All Rights Reserved. This report is for the use of intended recipients only and may not be reproduced, distributed or published for any purpose without prior consent of RHB and RHB accepts no liability whatsoever for the actions of third parties in this respect. Malaysia This report is published and distributed in Malaysia by RHB Research Institute Sdn Bhd ( M), Level 11, Tower One, RHB Centre, Jalan Tun Razak, Kuala Lumpur, a wholly-owned subsidiary of RHB Investment Bank Berhad (RHBIB), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Singapore This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No N), a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group) and OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB, which in turn is a whollyowned subsidiary of RHB Capital Berhad). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. As of 5 September 2013, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the securities covered in this report, except for: a) - As of 5 September 2013, none of the analysts who covered the securities in this report has an interest in such securities, except for: a) - Special Distribution by RHB Where the research report is produced by an RHB entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, it is only distributed to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd. Hong Kong This report is published and distributed in Hong Kong by RHB OSK Securities Hong Kong Limited ( RHBSHK ) (formerly known as OSK Securities Hong Kong Limited), a subsidiary of OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB ), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company. RHBSHK, RHBIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company. 8

9 Risk Disclosure Statements The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. RHBSHK does not maintain a predetermined schedule for publication of research and will not necessarily update this report Indonesia This report is published and distributed in Indonesia by PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Thailand This report is published and distributed in Thailand by RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Other Jurisdictions In any other jurisdictions, this report is intended to be distributed to qualified, accredited and professional investors, in compliance with the law and regulations of the jurisdictions. DMG & Partners Research Guide to Investment Ratings Kuala Lumpur Hong Kong Singapore Malaysia Research Office RHB Research Institute Sdn Bhd Level 11, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia Tel : +(60) Fax : +(60) RHB OSK Securities Hong Kong Ltd. (formerly known as OSK Securities Hong Kong Ltd.) 12th Floor World-Wide House 19 Des Voeux Road Central, Hong Kong Tel : +(852) Fax : +(852) DMG & Partners Securities Pte. Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore Tel : +(65) Fax : +(65) Jakarta Shanghai Phnom Penh PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia) Plaza CIMB Niaga 14th Floor Jl. Jend. Sudirman Kav.25 Jakarta Selatan 12920, Indonesia Tel : +(6221) Fax : +(6221) RHB OSK (China) Investment Advisory Co. Ltd. (formerly known as OSK (China) Investment Advisory Co. Ltd.) Suite 4005, CITIC Square 1168 Nanjing West Road Shanghai China Tel : +(8621) Fax : +(8621) Bangkok RHB OSK Indochina Securities Limited (formerly known as OSK Indochina Securities Limited) No. 1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok Phnom Penh Cambodia Tel: +(855) Fax: +(855) RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL) 10th Floor, Sathorn Square Office Tower 98, North Sathorn Road, Silom Bangrak, Bangkok Thailand Tel: +(66) Fax : +(66)

Capio Disclosures September Analyst certification. Regulation. Conflicts of interest

Capio Disclosures September Analyst certification. Regulation. Conflicts of interest Capio Disclosures Research reports are prepared by Equity Research, a division of Danske Bank A/S ( Danske Bank ). Analyst certification Each research analyst responsible for the content of research reports