The ending of the proposed merger between IJM Land Bhd and Malaysian Resources Corp Bhd (MRCB) has come as a disappointment for the former’s shareholders.
Investors had expected that a merged IJM Land-MRCB entity, which would have been the de facto property arm of the Employees Provident Fund (EPF), would play a major role in the major development planned for the 3,300 acres of Rubber Research Institute Malaysia (RRIM) land in Sungai Buloh, Selangor.
The expectation was driven by the fact that the EPF holds the mandate for the RRIM land and is a controlling shareholder of MRCB with a 41.63% stake, as well as a substantial shareholder of IJM Land’s parent IJM Corp Bhd, with a 16.3% stake. EPF also owns a 7.5% direct stake in IJM Land.
But with the merger called off, IJM Land’s investors have had their expectations curtailed.
It is still possible for IJM Land to revisit a merger with EPF-controlled MRCB, perhaps at a later stage, but until that happens, it will not be sitting still waiting for big projects to drop into its lap.
In fact, IJM Land’s prospects are looking as strong as ever as it kickstarts new development projects for this year and next. Meanwhile, it still has its crown jewel, the 2,000-acre Canal City township project in Kuala Langat, Selangor, which it co-owns equally with Kumpulan Europlus Bhd, an associate company of IJM Corp.
Canal City, which is adjacent to Kota Kemuning, has a total gross development value (GDV) of more than RM10 billion. It is IJM Land’s largest ever township project and one that is no less significant than the proposed development for RRIM’s land. Other than the vast size of the township, the low holding cost of the Canal City land, at RM5 per foot, means that the project could potentially be lucrative in terms of development margins.
Interestingly, the first phase of the Canal City will be pushed out to the market in 2012, earlier than the RRIM project, which is still believed to be on the drawing board.
In an interview with The Edge Financial Daily, Datuk Soam Heng Choon, IJM Land managing director, confirms that the Canal City project will be pushed to the market in 2012. He says the company is in the final leg of sorting out the development plans and getting the necessary approvals for the project.
“It will be our anchor project, along with The Light in Penang (with a GDV of RM4.9 billion),” says Soam, adding that the project will have a long development cycle of 10 to 15 years.
Canal City is expected to give IJM Land a strong boost from next year onwards. That aside, the company has also lined up property launches with a GDV of RM2 billion this year alone, which is its highest ever, Soam adds. The RM2 billion to be launched this year does not include the Canal City township project.
The value of launches planned by the company this year is significant compared with the RM1.4 billion in GDV launched last year. With its current unbilled sales at RM900 million, which is also a record, further major launches would create ever greater momentum for IJM Land in terms of revenue and earnings growth going forward.
“Property development is a cyclical sector. Now it is in a strong cycle and we are confident of launching more products into the market, or else we would not be doing our shareholders a favour,” says Soam.
While he reckons that the commercial property segment has turned soft, Soam says there is still huge potential in Malaysia’s housing market due to its young population, consumer confidence and low interest rate environment that is likely to continue this year.
While the loan-financing cap on the acquisition of third properties has resulted in purchases in certain segments slowing down, Soam says demand is still strong from those purchasing properties for their own occupation.
“With new households being formed at 200,000 a year, it is inevitable that these young families need homes, and this will continue to prop up demand for homes,” he says.
While he does not elaborate on the value of the maiden launch for Canal City next year, Soam says the company is looking at building landed terraced homes there for between RM400,000 and RM500,000 for a start. Soam says margins for the Canal City township could be lucrative, given the low land-holding costs on its book.
The IJM group and Kumpulan Europlus secured the land parcels in Canal City from the Selangor government as payment in kind for their involvement in the flood mitigation works and construction of the Shah Alam-Shah Alam 2 Expressway. The cost of the projects, undertaken by the IJM group and Kumpulan Europlus, translates into about RM5 psf for the 2,000 acres of land in Canal City, now jointly owned by both IJM Land and Kumpulan Europlus.
In east Malaysia, IJM Land also has a township project in Sandakan, Sabah, with properties selling for RM600 psf. In total, the company is looking at launching RM500 million worth of properties in Sandakan and Kota Kinabalu this year.
As for its development in The Light II, Penang, Soam says RM420 million worth of properties are expected to be launched this year, with selling prices of between RM600 and RM900 psf. In Sebana Cove, Johor, IJM Land has earmarked an enclave for the development of vacation or retirement homes.
Apart from the Canal City land and other parcels that have low holding costs, and where development could be stretched over many years to maximise value, Soam says the company prefers to adopt a fast-turnover development strategy for most of its landbank. The purpose of this is to recycle the company’s capital quickly enough to undertake new projects in order to sustain its high growth rate.
“At this stage, we are not keen on developing or expanding our portfolio of investment properties. Our strategy now is to develop and sell the properties we have built. Only after we have attained a critical mass for, say a township development, will we develop and keep a portfolio of investment properties for recurring income,” he says.
With the proposed merger with MRCB having been called off, IJM Land is “single” again, Soam quips.
“We are not ruling out the possibility of merger opportunities with other players, but it is not the case where we are going to call up every property player in town next, to see if they are interested in a marriage with us,” Soam adds.
He stresses that despite the IJM Land-MRCB deal having been called off for now, the relationship between the two property developers has not soured.
“Even though we may not form a company together, we are still open for joint ventures and partnerships with each other,” he says.
Investors continue to closely watch IJM Land to see if it might still be able to participate in the development of the RRIM land. But for now, this remains guesswork at best as the EPF has yet to officially indicate how it wants to carry out development of the land.
On what investors had expected before the deal was called off, Soam clarifies that the merger between IJM Land and MRCB was planned without factoring in the RRIM land development.
“For all intents and purposes, the merger was good for both companies, as it would have beefed up our balance sheets to take on bigger projects, especially those overseas such as in China, where land acquisition could easily cost billions of yuan,” Soam says.
That said, he adds that IJM Land is still interested in bidding for the projects on the RRIM land, as the developer has a proven track record and the balance sheet for the job.
IJM Land closed three sen higher last Friday at RM2.88. It is trading at 18.8 times estimated earnings for FY2011 ending Mar 31, and at 1.92 times book value, based on its net assets per share of RM1.50 as at Sept 30. - by Yong Yen Nie
This article appeared in The Edge Financial Daily, January 10, 2011.
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