IKEA Is Coming To Town, Soon!
After an anxious wait of almost 2 years for approvals from the relevant authorities, the sale of the 36.94 acres land in Taman Desa Tebrau (Johor) to the Ikano Group has finally been concluded, paving way for the latter to immediately commence the development works of its popular IKEA retail mall, the first ever in Johor. With IKEA joining in the ranks with the likes of Aeon Tebrau and TESCO by late 2010/11, plus the upcoming Monorail in the township, we are of the view that Desa Tebrau is one of the few townships in Johor that actually boasts the most commercial/investment sense. Earnings forecast and target price of RM4.77 remain unchanged.
A quick recap. On 20th July ’07, Plenitude sold its 36.94 acres of land in its Taman Desa Tebrau township to the Ikano Group for a total cash consideration of RM64.4m (RM40psf) with plans for the latter to develop its popular IKEA mall. Having to seek approvals from the relevant authorities such as the Foreign Investment Committee and the Johor State Government, the transaction was finally approved and completed on 20th February ’09. With an expected gross built-up area of approximately 280,000sq ft, the mall is anticipated to be up and running by late 2010 or early 2011.
Making its mark in Johor. If this construction schedule of the IKEA mall is promptly followed, its completion in 2011 will coincide with the expected recovery in the residential property market (especially in the landed properties), implying that the Desa Tebrau township as a whole will likely to feel the fullest benefit from the resurgence of homebuying activities by then, despite the stiff competition in the Johor State. Property sales in the township accounted for approximately 27% to the overall Group’s FY08 topline.
Strong footing to ride through the impending downcycle. As of 30th September ‘08, Plenitude is sitting on a net cash pile of RM176.6m (RM1.31/share) vs RM127.2m in 4QFY08. The recognition of this strategic disposal of land to the Ikano Group will potentially add a further RM55.95m (+41.4sen/share) to its current net cash pile after tax. Having such strong balance sheet and cash flow will ensure the Group to comfortably withstand any sales slowdown as a result of the expected downcycle in 2009.
Why should you accumulate now? Plenitude is currently trading at a forward P/NTA of 0.4x, a steep discount to peers’ average of 0.7x. Supported by dividend yield of 6.3% and strong net cash of RM1.31/share (and a further potential of +41.4sen/share), further severe downside risk to its share price from current level could be very limited. Coupled with its strong ability to ride through the impending storm in 2009, we believe now is the best level for investors to start accumulating.
A QUICK RECAP…
The Taman Desa Tebrau township (Iskandar Malaysia). The township has achieved a 90% take-up rate for its launches. 124 units of shoplots were successfully sold out within 3 months of launching. It recently launched the first Block D of Tebrau City Residences (Service Apartment) of 82 units with an average price of RM180k/unit, which fronts the AEON Tebrau City and upcoming TESCO hypermarket and IKEA retail store and has achieved a take-up rate of >60%. The township still has a landbank of approximately 600 acres for future development. Leveraging on its impending “IKEA-factor” on top of the existing AOEN departmental store and upcoming TESCO and monorail connecting the township to Johor Bahru CBD, this development
will continue to be one of the prime drivers to Plenitude’s earnings performance going forward. The property sales in the township accounted for approximately 27% to the overall Group’s FY08 topline.
Making its mark in Johor. Its strategic location within the Tebrau Corridor fronting the Johor Bahru-Kota Tinggi Highway and the Desa Tebrau Interchange located only 14km north-east of the Johor Bahru town centre has seen the township experience one of the fastest growth in population and property prices in the Tebrau Corridor enclave in recent years. The emergence of the following catalysts will, co-synergistically supporting one another, encourage a strong resurgence of encouraging home-buying interests in the township after the current pall in the residential property market by 2011:
(i) Aeon Tebrau (Jusco), the biggest Aeon departmental store in Asia began its operations in Desa Tebrau in January 2006, marked the first entry and establishment of a prominent landmark in the vicinity of the Desa Tebrau development project;
(ii) The upcoming TESCO hypermarket. Currently under construction, the hypermarket is expected to be operational by year 2009. Sited on a 10.898-acre of land, the land is leased to TESCO for 30 years starting from March 2006. This marked the second entry of another longterm prominent investor into the Tebrau City;
(iii) The upcoming monorail connecting Aeon Tebrau to the Johor Bahru Central Business District. This will be a boon and an excitement to the township’s population especially the working professionals who commute frequently to and fro the Johor Bahru Central Business
District (CBD) and Singapore. Nonetheless, we are unsure when will this Monorail .
(iv) The upcoming IKEA retail mall. Expected to be operational by year 2009/10, the retail IKEA is expected to have a total built-up area of 280,000 sq ft (IKEA Damansara in KL has an estimated built-up area of 344,445 sq ft). This again marks the third entry of another long-term
prominent investor into the Tebrau City.
District (CBD) and Singapore. Nonetheless, we are unsure when will this Monorail .
(iv) The upcoming IKEA retail mall. Expected to be operational by year 2009/10, the retail IKEA is expected to have a total built-up area of 280,000 sq ft (IKEA Damansara in KL has an estimated built-up area of 344,445 sq ft). This again marks the third entry of another long-term
prominent investor into the Tebrau City.
By OSK Investment Research
