insights malaysia opportunities

8/17/2019 Insights Malaysia Opportunities

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New urbanization trend:Evolution of KL South•

KL south migration gaining traction, driven byMRT connectivity, strong population growth, andlarger supply of affordable homes

•Kajang-Semenyih growth corridor the mostpromising hotspot within Greater KL givenavailability of cheap land bank and readyinfrastructure

•KL-SG High Speed Rail - the wildcard to shift city

center towards KL South

•Top beneficiaries: MKH (high-conviction Buy), EcoWorld (Initiate coverage), SP Setia (Upgrade toBuy)

Huge price disparity driving KL south migration. Escalating land prices within Greater KL have reduced thesupply of affordable landed properties, which remain indemand. The MRT connectivity at Kajang (ready by 2017) andthe ready infrastructure with several highways have madeKajang/Semenyih the natural choice for developers to expandtownship developments. This is supported by the availability oflarge tracts of land and these districts recording the among thestrongest population growth in Selangor. The close proximity

to KLCC and Putrajaya federal administrative centre will ensureKL South continues to thrive.

Follow the infrastructure. The terminal station of theproposed KL-SG High Speed Rail (HSR) link at Bandar Malaysiacould accelerate migration to KL south given the moreintegrated public transport system by then. The MRT Line 2which has been approved by the cabinet could link southwardto Putrajaya, which would drive more development inKajang/Semenyih.

Top pick: MKH. Its large exposure to affordable housing andlanded residential projects in its stronghold Kajang-Semenyihgrowth corridor (490 acres), coupled with its low land cost atprime locations, will make MKH the largest beneficiary of the

KL south migration.

ESESESES

KLCIKLCIKLCIKLCI :::: 1,872.971,872.971,872.971,872.97

AnalystQUAH He Wei, CFA +603 2604 [email protected]

STOCKS

Source: AllianceDBS

Increasing property sales and prices

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Yr 2000=100Yr 2000=100Yr 2000=100Yr 2000=100RMbnRMbnRMbnRMbn

Value of property transaction house price index

Source: AllianceDBS, NAPIC

DBS Group Research . EquityDBS Group Research . EquityDBS Group Research . EquityDBS Group Research . Equity 21 Jul 2014

Malaysia Industry Focus

Property Refer to important disclosures at the end of this report

PricePricePricePrice Mkt CapMkt CapMkt CapMkt Cap Target PriceTarget PriceTarget PriceTarget Price Performance (%)Performance (%)Performance (%)Performance (%)

RMRMRMRM US$mUS$mUS$mUS$m RMRMRMRM 3 mth3 mth3 mth3 mth 12 mth12 mth12 mth12 mth RatingRatingRatingRating

UEM Sunrise Bhd 2.10 2,863 2.20 (11.8) (30.9) HOLD

SP Setia 3.52 2,788 4.10 20.6 5.4 BUYSunway Bhd 3.18 1,722 3.70 2.6 (4.2) BUYEastern & Oriental 2.99 1,039 3.80 19.6 51.0 BUYMKH Berhad 4.01 528 5.85 22.1 123.0 BUYEco World 5.08 404 6.00 (1.0) 605.6 BUYWing Tai Malaysia 2.15 218 2.25 (9.7) (16.3) HOLDHunza Properties 2.00 143 2.20 0.0 2.0 HOLD


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QUAH He Wei, CFA +603 2604 [email protected]

Table of Contents

Why KL South migration? 3

Map of improved public transport connectivity 6

Catalyst from major infrastructure projects 7

Malaysia property market remains healthy 9

Investment strategy 12

Risks 13

Peer comparison 14

Stock Profiles 17

MKH (High-conviction Buy) 18

SP Setia (upgrade to Buy) 20

Eco World (coverage initiation) 22

MICA (P) 043/10/2009MICA (P) 043/10/2009MICA (P) 043/10/2009MICA (P) 043/10/2009


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Why KL South migration?

Escalating land prices within Greater KL have reduced the

supply of affordable landed properties, for which there is still

strong demand. The connectivity of MRT into Kajang (ready by

2017) and the ready infrastructure with several highways, have

made Kajang/Semenyih the natural choice for developers to

expand township developments, with the availability of large

tracts of land bank and the area recording one of the strongest

population growth in Selangor (26% of total transactions).

Greater KL/Klang Valley remains the core of the government’s

economic transformation program – the government wants to

grow the Greater KL population to 10m by 2020 from an

estimated 7m currently. This means the Greater KL population

has to grow by 5.2% p.a. on average, much higher than the

national average of ~1.4%. If the goal materializes, this would

translate into stronger demand for housing of 80k units p.a. in

Greater KL alone vis-à-vis 78k units completed for the whole

country in 2013.

Greater KL – economic growth driver

Population

(m)

Density

(ppl/sq km) Urbanisation

Selangor 5.46 674 91.4%

KL 1.67 6,891 100%

Putrajaya 0.07 1,478 100%

Malaysia 28.3 86 71%

Source: AllianceDBS, Department of Statistics

Greater KL prices much higher than national average

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2006 2007 2008 2009 2010 2011 2012 2013

RM'000RM'000RM'000RM'000

KL Putrajaya Selangor Msia


Housing demand in Greater KL is likely to remain healthy going

forward, but buyers will be picky because of steep pricing, no

thanks to a slew of cost-push factors including inflationary

pressure, subsidy rationalisation, and implementation of

minimum wages. Faced with the risk of margin compression,

property developers will naturally look to landbank in areas

where land cost is relatively low, and there is ready

infrastructure and a growing population.

The construction of the MRT Sg. Buloh-Kajang line has drawn

interest to the Kajang/Semenyih growth corridor which is

located within the Hulu Langat district, Selangor, because of

the availability of vast land bank there. The 51-km MRT line will

have 31 stations including 16 with park-and-ride facilities and

four interchange stations. The line will link Sungai Buloh in the

northwest and Kajang in the southeast.

Indeed, the much-needed catalyst – three MRT stations within

Kajang - has driven several public-listed property developers to

grab land in the area. Other major developers such as SP Setia,

Mah Sing, UEM Sunrise, Eco World, and Tropicana, have also

jumped on the bandwagon as the areas gains recognition as

strategic townships at a relatively comfortable distance from KL

city center, that offer affordable housing and ready

infrastructure:

i) Education hub: there are several education institutions in

the vicinity, including New Era University College, Universiti

Kebangsaan Malaysia, Universiti Putra Malaysia,

Nottingham University campus, Universiti Tenaga Malaysia,

the German Malaysia Institute, and the Australia

International School;

ii) Easy access with the opening of several highways that link

Kajang/Semenyih to other major townships within Klang

Valley. These include the Kajang SILK Highway and

Persiaran Kajang-Semenyih. Other links to the area areLebuhraya Utara Selatan, Lebuhraya Cheras-Kajang and

Lebuhraya Klang Selatan; and

iii) Strong population growth driven by urban migration.

According to Department of Statistics data, Kajang’s

population was close to 800,000 in 2010, or 15% of

Selangor’s population of 5.4m. The local town council

(MPKj) expects Kajang’s population to exceed 1m by 2013.


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Public-listed developers rushing to buy land in Semenyih/Kajang

DateDateDateDa te Buye rBuyerBuyerBuyer Locat ionLocat ionLocat ionLoc a t ion RMmRMmRMmRMm RMpsfRMpsfRMpsfRMpsf Re ma rksRemarksRemarksRemarks

02-Jul-14 Eco World Se me nyih 492.7 225.3 10.5 near Bandar Rinching

25-Apr-14 Eco World Se me nyih 1,073.1 950.0 20.3 near Bandar Rinching

21-May-12 Mah Sing Bangi 412.0 333.3 18.6 3.2km away from UKM

01-Mar-12 Knusford Semenyih 13.3 14.2 24.5 nea r Taman Kajang Perdana and Taman Jelok Impian

03-Oct-11 SP Setia Semenyih 673.3 381.3 13.0 13km south of Kajang in Rinching

08-Sep-11 Ireka Corp Kajang 20.6 22.4 25.0 within Bukit Angkat Industrial Zoning

05-Sep-11 Tropicana Corp Se me nyih 198.5 228.0 26.4 Kajang Hills

06-Dec-10 UEM Sunrise Bangi 463.5 268.5 13.3 nea r Banda r Seri Putra

S izeS izeS izeS ize

(ac re )( ac re )( ac re )( ac re )

Source: AllianceDBS, Companies

Land prices in KL Northern areas such as Sg. Buloh, Petaling

Jaya and Kota Damansara have long been valued at a premium

to KL Southern areas. But the MRT line will change the

dynamics, it will revitalise the Kajang/Semenyih corridor. In

fact, land prices in Kajang/Semenyih have almost tripled

compared to 3-4 years ago, albeit coming from a low base.

Huge disparity in land price between North and Southof KL for parcels near MRT stations

AreaAreaAreaArea

Est. landEst. landEst. landEst. land

pricepricepriceprice

Est.Est.Est.Est.

propertypropertypropertyproperty

AS PAS PAS PASP DeveloperDeveloperDeveloperDeveloperRMpsfRMpsfRMpsfRMps f RMps fRMpsfRMpsfRMpsf

Sg. Buloh 200-300 600-700

Kota Damansara 200-300 600-700 Meda Inc

1300-1800 1450 Guoco Land

Dataran Sunway 350-450 1000-1200 Tropicana

Kajang city 80-100 350-450 MKH

Mah Sing,

Selangor Dredging

Pusat Bandar

Damansara

Source: AllianceDBS, Various

We compare Kajang (in Hulu Langat district) and Sg. Buloh (in

Petaling district) because these two areas have similar

demographics and public transport connectivity. Kajang and

Sg. Buloh are among the most populous districts in Selangor,

and the existing KTM railway runs through both areas.

Similarly, the terminal stations of the MRT line which will be

ready by 2017 will be located at Sg. Buloh and Kajang.

However, there is a stark contrast in property prices between

the two areas, in favour of the northern region. We believe the

completion of the MRT Sg Buloh-Kajang Line will reduce the

disparity as property buyers will likely decide mainly on price

then.

Also, property affordability is increasingly an issue for the

general public with prices surging in recent years and demand

outpacing new supply of houses by a large margin, particularly

for low-to-medium cost units.

Population in Selangor

District in SelangorDistr ict in SelangorDistr ict in SelangorDistr ict in Selangor

Gombak 668,694

Klang 842,146

Kuala Langat 220,214

Kuala Selangor 205,257

Petaling 1,765,495

Sabak Bernam 103,709

Sepang 207,354

Hulu Langat 1,138,198

Ulu Selangor 194,387

Source: AllianceDBS, Department of Statistics


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Hulu Langat property prices catching up with Petaling

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Selangor Petaling Hulu Langat


Wide disparity for terraced house price

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Petaling Hulu Langat KL


Hulu Langat terraced house price growth outperform

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Petaling Hulu Langat KL


We noticed Hulu Langat district terrace house prices have

consistently outperformed those in KL and Petaling district,which is most likely due to the huge price disparity. Based on

National Property Information Center (NAPIC) 1Q14 data,

average price of terrace houses in KL and Petaling district are

121% and 65% higher than those in Hulu Langat. Therefore,

we believe the huge price difference is expected to drive more

property buying interest to Kajang/Semenyih growth corridor

where lifestyle gated-and-guarded developments have been

mushrooming due to the strong demand.

Indeed, since the announcement of the MRT Sg. Buloh-Kajang

Line, demand for landed properties in Kajang/Semenyih has

been rising. Property sales have been resilient, driven by the

strong population growth in the second most populous district

in Selangor. The KL South migration is imminent; major

developers in Kajang/Semenyih rushing to buy land there

reinforces our view that this will be one of the best hotspots in

the years to come, possibly more visible when the MRT stations

are completed by 2017.

Hulu Langat properties sell like hot cake

LaunchLaunchLaunchLa unc h Proj ec tP ro jec tP ro jec tPro je c t De ve lope rDeve loperDeve loperDeve loper

TakeTakeTakeTake

upupupup TypeTypeTypeType

Pr ice/Pr ice/Pr ice/Pr ice/

un i tun i tun i tun i t

Sep13 Southville City Mah Sing >90% high rise >280k

Oct13 Setia Eco Hill SP Setia >90% landed >450k

Nov13 Diamond City Country Garden >80% lande d >900k

Feb14 Tropicana Heights Tropicana >90% landed >740k

Apr14 Saville Kajang MKH >80% high rise >290k

May14 Eco Majestic Eco World >80% landed >590k

Source: AllianceDBS, various

Developers are still launching high-priced products and fewer

affordable projects, as land prices within Klang Valley have

risen sharply that it is no longer feasible to launch affordable

housing. The MRT network reaching out to Kajang has also

reshaped public perception on residential projects in

Kajang/Semenyih; they were previously associated with long

travel distance from KL city center.

The availability of landed properties in Kajang/Semenyih at

lower prices than in other established townships such as

Petaling Jaya and Kota Damansara and good public transport

connectivity, appeal most to the general public. An additional

advantage is the close proximity to Putrajaya federal

administrative center, which has contributed to robust property

sales in the area. Upgraders from Cheras, Putrajaya and

Cyberjaya also naturally look at Kajang/Semenyih when it

comes to buying gated and guarded residential projects with

lifestyle amenities.


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Ripe for KL south migration with improved infrastructure

Source: Ho Chin Soon Research, AllianceDBS


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More catalyst from major infrastructure projects

MRT Line 2 gets green l ight from federal government.MRT Line 2 gets green l ight from federal government.MRT Line 2 gets green l ight from federal government.MRT Line 2 gets green l ight from federal government. This line

will link Sg. Buloh and Putrajaya in the South. We expect the

contracts to be awarded by 2H15. Although the alignment has

yet to be finalised, proposals to extend the line to areas like

Serdang and Putrajaya could help to drive KL South migration.

The combined coverage of MRT Line 1 and 2 will create a huge

catchment area to further spur property development in the area.

Malaysia’s most modern public transport mode will enable the

residents to reach major destinations within Greater KL with

relative ease. The appeal of better quality of life at relatively

lower price in the Kajang/Semenyih growth corridor will

transform the property landscape there.

Transit-oriented developments (TODs) are also positioned to take

off strongly with the extension of MRT connectivity to KL South.

The convenience of TODs has not been fully appreciated by the

public vis-à-vis property buyers in Singapore and Hong Kong, as

this single largest infrastructure project is a first for Malaysia.

HighHighHighHigh SSSSpeedpeedpeedpeed RRRRailailailail. The ambitious High-Speed Rail (HSR) project due

for completion by 2020 would reduce the journey from

Singapore to Kuala Lumpur to just 90-minutes, from up to 4.5

hours currently. The location of the terminal in Singapore has yetto be finalised, but it has been reported Bandar Malaysia would

house the terminal station in Malaysia.

There are plans for the 330km line to make stops in Negri

Sembilan, Malacca and Johor, which could extend the journey

time to 2 hours, but this is still preliminary. We understand the

Malaysian government is conducting technical surveys, socio-

economic analyses on the proposed stations, and the proposed

alignment, among others. The HSR service is expected to boost

travel between the two countries and result in significant

economic gains for both.

The decision to place the Malaysian terminal at Bandar Malaysia

in Sungai Besi, at the current site of the Royal Malaysian Air Force

base, is a welcome surprise for KL South migration, as there

could be spillover effects on the Malaysian property sector.

The positive impact of an integrated HSR and MRT Line 1 and 2

in the future is likely to benefit Kajang/Semenyih the most, since

it is coming from a relatively lower base than more established

townships in Greater KL.


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Developers with exposure to KL South

DeveloperDeveloperDeveloperDeve lope r Proj e ctProjectProjectProje ct LandLandLandLand

% of% of% of% of

landlandlandland

bankbankbankba nk L oc ati onLocationLocationLocation GDVGDVGDVGDV

% of% of% of% of

totaltotaltotaltotal

GDVGDVGDVGDV

% of% of% of% of

RNAVRNAVRNAVRNAV RemarksRemarksRemarksRemarks

(acre)(acre)(acre)(acre ) (RMm)(RMm)(RMm)( RM m) ( RM m)(RMm)(RMm)(RMm)

MKH Various 491 44%

Kajang/Semenyih, Cheras,

Seri Kembangan 5,087 69% 46%

Various projects including Kajang 2,

Pelangi Semenyih, Hillpark Homes

Tropicana Tropicana Heights 199 10% Kajang 1,456 2% n.a. township development

SHL Bandar Sg. Long 328 55% Sg. Long n.a. n.a. 50% Include 160-acre golf course@Sg. Long

SP Setia Setia EcoHill 1,447 30% Bandar Rinching, Semenyih 7,360 11% 6% township development

Eco World EcoMajestic 1,566 32% Bandar Rinching, Semenyih 14,640 31% 14% township development

Hua Yang

One South,

Mines South 22 3% Seri Kembangan 1,035 n.a. n.a. mixed development

UEM SunriseSerene Heights,Sinaran Hills 513.6 7% Bangi, Kajang 3,270 4% 2% residential projects

Mah Sing Southville City 428 15% Bangi 8,300 32% n.a. township development

Source: AllianceDBS, Various, Companies

Our ground checks revealed that property projects within

Kajang/Semenyih have been doing exceptionally well. The

presence of established developers such as SP Setia, MKH,

Tropicana, Eco World and Mah Sing, supports our optimistic

outlook for property developments in an area that had been

overlooked by property buyers previously because of perceived

haphazard planning, lack of quality products, and weaker

infrastructure.

Gated and guarded landed properties are the main attractions

for genuine buyers/upgraders because of relatively more

attractive pricing. This type of products are increasingly beyond

the affordability of young working adults in other prime areas

of Greater KL, as developers price in rising construction costs

and land prices.

The Kajang/Semenyih/Bangi areas provide golden opportunity

for developers to tap into the strong demand for landed

properties, because of the availability of large tracts of land

bank in the area. This is virtually the last area within Greater KLthat is still available at reasonable prices, yet offer strong

growth prospects as the improving infrastructure and facilities

would enhance its appeal.

Kajang/Semenyih will be the next hotspot going forward. For

property developers, the resilient demand for landed properties

will create a more stable market vis-à-vis high-end condo

projects which are heavily dictated by market sentiment.

Typical bread-and-butter terrace houses have been selling well

over the years as supply and demand are driven by sector

fundamentals.

We understand that MKH, one of the oldest names inKajang/Semenyih, has never employed the developers’ interestbearing scheme (DIBS) incentive to sell their products, evenduring the down cycle when many developers in townintroduced that to address slowing sales. This is strongtestament to the booming yet resilient property sales in thegrowth corridor, the dynamics greatly enhanced by the MRTconnectivity.


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Malaysian property market remains healthy

Despite the relatively weaker property sentiment due to

tightening measures, property prices remain at record highs as

supply continue to lag demand. Property demand in Malaysia is

supported by favourable demographics - young and growing

population (and labour force), increasing urbanisation, and

shrinking household size. The Malaysian economy is expected to

grow by 5.3% in 2014 (vs 4.7% in 2013), while unemployment

rate is healthy at 3%.

Relatively healthy economic indicators

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

-10%

-5%

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012 2013

GDP growth (LHS) GNI growth (LHS) Savings % (RHS)

Source: AllianceDBS, BNM

Lower impaired loan ratio despite rising householddebt

0.0

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0

500

1,000

1,500

2,000

2009 2010 2011 2012 2013

%%%%RMbnRMbnRMbnRMbn

HH debt (LHS)

HH financial asset (LHS)impaired loan ratio of HH sector (RHS)


There are concerns rising household debt could pose a serious

threat to the economy, but more stringent lending guidelines

adopted by financial institutions could help to ease the pressure.

Household debt also grew at a slower pace of 11.7% in 2013,

compared to 13.5% in 2012. We believe the risk of a property

bubble is well contained by strong fundamentals in Malaysia’s

economy and a robust banking system. Overall household

financial health is stable as indicated by 45% household gearing

and a gross national savings-to-gross national income ratio of

31%.

Healthy gross domestic savings

0%

10%

20%

30%

40%

50%

60%

Indonesia Singapore Thailand Malaysia Philippines

Source: AllianceDBS, World Bank

Meanwhile, non-performing loans for residential property

mortgage have been improving over the years. The gross

residential mortgage loan NPL ratio has improved from 3.5% in

2010 to 1.5% recently. We understand banks have been more

cautious with loan approvals, as some property buyers have been

facing difficulty in getting mortgage loans. Nevertheless, loan

applications and approvals have started to pick up in recent

months.

Mortgage NPLs trending down

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

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(4)

(2)

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16

Dec-04 Mar-06 Jun-07 Sep-08 Dec-09 Mar-11 Jun-12 Sep-13

RMbnRMbnRMbnRMbn

Gross NPL Chg NPL Mortgage NPL%



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Affordability supported by cheap financing

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(x)(x)(x)(x)RM'000RM'000RM'000RM'000

affordable house pr ice (LHS) affordabil ity rat io (RHS)


Despite the rapid increase in property prices in recent years,

affordability remains healthy thanks to the low financing rates

and rising household income. We note that 87% of the value of

residential property transactions in 2013 were priced below

RM500,000, and Malaysia still has the lowest house price-to-

income ratio in the region.

Malaysia’s house priceMalaysia’s house priceMalaysia’s house priceMalaysia’s house price----totototo----income still lowest in the regionincome still lowest in the regionincome still lowest in the regionincome still lowest in the region

Source: URA, Singstat, Demographia, Bank of Thailand, BNM

The recent interest rate hike of 25 basis points is unlikely to cause

a major slowdown in the property market. A 25 basis pointincrease in the base lending rate would lift a 30-year RM500k

mortgage loan instalment payment by RM74/month, an increase

of only 3% over the current monthly instalment of ~RM2,445.

Nevertheless, sentiment may be affected temporarily after rates

are adjusted by commercial banks.

The rate hike was due to BNM concern over the risk of broadereconomic and financial imbalances that could undermine the

growth prospects of the Malaysian economy. Should there be

more interest rate hike in tandem with the growing economy, it

is unlikely to adversely affect property sales growth judging by

historical trend though consumer sentiment may be affected.

We believe property prices are likely to remain steady at current

levels, after the steep appreciation over the past few years. The

supply deficit will continue to support prices as the young labour

force (60% below 40 years old) will be seeking residential

properties. Newly completions have ranged from 65k-80k units

p.a. in recent years, while Malaysia household formation has

exceeded 100k p.a., underpinning strong demand for properties.

Demand is further supported by easy access to credit.

Property prices reaching all-time high

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2000=1002000=1002000=1002000=100

All Terraced High-rise Detached Semi-D


Healthy inventory levels

KLKLKLKL Se langorSelangorSelangorS el an gor J ohorJohorJohorJohor PenangPenangPenangPe na ng Othe rsOthersOthersOthers M alays iaMalay s i aMalay s i aMalay s i a

Exi sting S tock 424,324 1,358,054 705 ,929 377,942 1,852,285 4,718,534

% of Msia 9% 29% 15% 8% 39% 100%

Completions 1,281 19,003 12,402 12,583 32,996 78,265

% of stock 0% 1% 2% 3% 2% 2%

Incoming supply 52,714 149,644 118,191 64,482 311,526 696,557

% of stock 12% 11% 17% 17% 17% 15%

total unsold 8,567 11,935 15,385 2,259 27,429 65,575

Unsold/stock 2.0% 0.9% 2.2% 0.6% 1.5% 1.4%



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Page 11

Rising construction cost

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4 Q 1 3

1 Q 1 4

Source: AllianceDBS, Langdon Seah

Cost-push factors such as rising construction cost and the

implementation of 6% Goods & Services Tax (GST) effective

Apr15 will continue to create upward pressure on selling prices.

New tenders for construction contracts have been seeing higher

quotations, partly due to intense competition for raw materials

and labour with the rollout of mega infrastructure projects in

Malaysia. We understand property developers have started to

factor in GST in selling prices for new projects.

The sticky prices could translate into softer demand for certain

properties, but demand for landed properties is likely to remain

resilient although there will be limited supply of affordable unitsin view of the escalating land prices within Greater KL. The

scarcity of large tracts of land bank in prime areas has also

resulted in developers opting to build high-rise projects to

optimize yields (gross development profit/acre).

Other challenges include the increasing compliance cost. These

include bumi discount/quota (5-15%/30-60% depending on

location and land status), low-medium cost housing quota (30-

50% depending on land size), and government reserve/public

area, which have led to cross-subsidy of products. We

understand developers incur ~RM100k losses/unit for each low-

cost house built because the RM42k cap implemented by the

government has stayed despite rising construction costs.


12/39

Industry Focus

Property

Page 12

Investment strategy

Despite generally weaker sentiment in the property market,

property sales in Kajang/Semenyih growth corridor has been

outperforming those in more established townships within

Greater KL. We like the mass-market township developments

in Kajang/Semenyih, for which demand will remain resilient

with the improvements to overall infrastructure as well as

public transport connectivity.

MKH and Eco World will be among the largest beneficiaries of

the booming Kajang/Semenyih growth corridor, as the

potential GDV from their land bank account for 69% and

31%, respectively, of their overall GDV in the pipeline.

Promising sales at their projects will underpin long-term

earnings visibility.

The undisputed advantage of cheaper land cost - to supply

landed properties - in the area wil l ensure property and land

prices converge rapidly towards average prices in KL. This

could create a multi-year re-rating for both MKH and Eco

World which enjoy strong branding.

TopTopTopTop/High conviction /High conviction /High conviction /High conviction pick: MKHpick: MKHpick: MKHpick: MKH. The company will be the

largest beneficiary of the upcoming MRT connectivity given its

high exposure to the booming Kajang/Semenyih growth

corridor. MKH is a rare gem that offers both deep value andstrong earnings growth

MKH has an unrivalled competitive advantage in

Kajang/Semenyih property development because of their low

land cost of RM10psf (vs peers’ >RM20psf). Affordable homes

- MKH’s stronghold - remains the key theme for the property

sector. Their large tract of prime property land bank in

Kajang/Semenyih (490 acres) makes them the prime

beneficiary of rising land prices there. Scarcity of land within

Kajang also provides a distinct advantage for MKH’s future

launches, which are expected to see strong demand and fetch

premium pricing.

MKH is on track to achieve its record high property sales target

of RM800m for FY14 (vs RM580m in FY13). It booked

RM410m sales in 1HFY14, of which RM96m is pre-sale

booking. This has yet to include overwhelming sales from

Saville@Kajang (RM280m GDV) which has achieved impressive

80% take-up although the project was only launched in April.

As a result, unbilled sales is at an unprecedented RM602m as

at March, or 1.3x its FY13 property revenue.

Record high unbilled sales

0

100

200

300

400

500

600

700

FY10 FY11 FY12 FY13 2QFY14

RMmRMmRMmRMm

unbilled sales

Source: AllianceDBS, Company

Initiate coverageInitiate coverageInitiate coverageInitiate coverage:::: Eco WorldEco WorldEco WorldEco World ((((BUY, RM6.BUY, RM6.BUY, RM6.BUY, RM6.00000 TP)0 TP)0 TP)0 TP). Eco World has

been gaining prominence in Malaysia’s property market, as the

new company is backed by a solid ex-SP Setia management

team that have a proven and impeccable track record during

their tenure in SP Setia. The company is in the midst of a major

corporate exercise to be completed in 3Q14, which will turn

the company into a large scale developer with 4.4k acres of

land bank that could generate RM43.5bn GDV.

Eco World has direct exposure to the Kajang/Semenyih growth

corridor through 1,566 acres of land bank in Semenyih which

has the potential to generate RM14.6bn GDV. Management’s

impressive execution track record is the strongest confidencebestowed by the general public towards its property projects.

Eco World’s EcoMajestic@Semenyih received overwhelming

response for the 1st phase, Cradleton, where more than 2,000

property buyers queued on launch day to grab the 612 units

available for sale at end May.


13/39

Industry Focus

Property

Page 13

Eco World may bring forward subsequent phases of

EcoMajestic in view of strong demand for its landed products,despite the premium pricing starting at RM586k/unit for a

terrace house. Property sales should gain momentum as more

of its eco-themed projects are introduced to the market.

The company is on track to achieve its RM5bn sales target over

FY14-15 given its presence in Malaysia’s property hotspots in

the Klang Valley, Iskandar Malaysia, and Penang. We project

the company will achieve 3-year earnings CAGR of 102% over

FY13-16F

Land bank upon completion of corporate exercise

Source: AllianceDBS, Company

SP SetiaSP SetiaSP SetiaSP Setia (Upgrade(Upgrade(Upgrade(Upgrade to Bto Bto Bto BUY,UY,UY,UY, TPTPTPTP RM4.10RM4.10RM4.10RM4.10).).).). SP Setia will be one of

the beneficiaries of the rising prominence of KL South, through

it 1,447 acres of undeveloped land bank in Semenyih which

was acquired in 2011 at a blended cost of RM10.6psf. Setia

Eco Hill launched in Oct13 was met with astounding success;

the project had more than 26,000 registrants for 760 units onoffer during the launch. We understand the ballot numbers

were snapped up within five hours, and over 2,000 people

turned up for the sales launch.

The company’s fundamentals remain solid given its record high

unbilled sales of RM11.2bn, which translates into 4x FY13

property development revenue. Therefore, we project SP Setia

to deliver 3-year earnings CAGR of 18%. Also, SP Setia

remains one of the largest developers in Malaysia with sizeable

prime land bank that was acquired at relatively lower prices

few years ago.

SP Setia’s prime 4,782-acre land bank (RM71bn GDV) has low

holding cost, which means the company stands to benefit themost the steep land price appreciation in recent years.

Therefore, SP Setia is poised to benefit from resilient demand

for its established township developments in Setia Alam (712

acres undeveloped; RM3.50psf land cost) and Setia Eco Hill

(1,447 acres; RM10.6psf) which should continue to see strong

sales.

We believe the concern over SP Setia’s management departure

has been priced in and the overhang has now been removed

after the departure of its CEO. Re-rating catalyst could come

from potential M&A exercise which is likely to be done above

put option exercise price granted to Tan Sri Liew Kee Sin at

RM3.95/share.

Risk

Margin compression.Margin compression.Margin compression.Margin compression. Developers may not be able to pass

through to property buyers the incremental costs resulting

from rising land prices and construction costs, as the market

may not be receptive of higher selling prices in view of record

high house prices. We understand there is also labour shortage

in some areas such as Iskandar Malaysia where the situation is

more severe, which will result in contractors demanding higher

quotations for construction works.

Slowing salesSlowing salesSlowing salesSlowing sales. Property sales may slow down in certain

locations as property buyers could be deterred by the high

entry price and tightening measures, with banks adopting

more cautious lending practice for mortgage loans.

Rising householRising householRising householRising household debtd debtd debtd debt. The unprecedented household debt

level could strain purchasing power and demand for future

properties, in view of rising inflationary pressure and the

impending interest rate hike which will lower disposable

incomes.

En la rged land bankEn la rged land bankEn la rged land bankEn la rged l and bank Ac re sAcresAcresAcre s GDV (RMm)GDV (RMm)GDV (RMm)GDV (RMm)Eco Centra lEco Centra lEco Centra lEc o Ce ntra l Saujana Glenmarie 25.9 90

Eco Sky 9.6 974

Eco Majestic 1073.1 11,144

Eco Sanctuary 308.7 8,000

1417.31417.31417.31417.3 20,20820,20820,20820,208

Eco SouthEco SouthEco SouthEc o South Eco Botanic 325.1 3,794

Eco Spring 613.8 5,871

Eco Tropics 743.6 3,400

Eco Business Park 1 612 3,799

Eco Business Park 2 383.6 3,009

Eco Business Park 3 248 2,000

2,9262,9262,9262,926 21,87321,87321,87321,873

Eco NorthEco NorthEco NorthEc o North Eco Terraces 12.8 338

Eco Meadows 75.7 916 Eco Macalister 1.1 190

89.689.689.689.6 1,4441,4441,4441,444

4,4334,4334,4334,433 43,52543,52543,52543,525


14/39

Industry Focus

Property

Page 14

Peer comparison

MMMMarketarketarketarketcapcapcapcap

PEPEPEPE PBPBPBPB ROEROEROEROECompanyCompanyCompanyCompany FYEFYEFYEFYE RatingRatingRatingRating PricePricePricePrice TPTPTPTP P/RNAVP/RNAVP/RNAVP/RNAV CY14CY14CY14CY14 CY15CY15CY15CY15 CY14CY14CY14CY14 CY15CY15CY15CY15 CY14CY14CY14CY14 CY15CY15CY15CY15

UEM Sunrise Dec Hold 2.10 2.20 9,529 52% 17.5 24.1 1.5 1.4 8% 6%

SP Setia Oct Buy 3.52 4.10 8,876 40% 18.8 13.9 1.5 1.5 8% 10%

Sunway Dec Buy 3.18 3.70 5,482 23% 10.9 9.1 1.0 0.9 9% 10%

E&O Mar Buy 2.99 3.80 3,307 33% 30.0 20.7 2.2 2.0 7% 10%

MKH Sep Buy 4.01 5.85 1,682 33% 11.3 7.9 1.5 1.3 14% 17%

Eco World Oct Buy 5.08 6.00 1,287 32% n.m. 34.1 1.3 1.3 1% 4%

Wing Tai M'sia Jun Hold 2.15 2.25 676 52% 7.6 5.7 0.6 0.6 8% 10%

Hunza Jun Hold 2.00 2.20 456 59% 18.6 8.1 0.5 0.5 3% 7%

AverageAverageAverageAverage 40%40%40%40% 16.416.416.416.4 15151515.5.5.5.5 1.31.31.31.3 1.21.21.21.2 7%7%7%7% 9%9%9%9%

MKH PE band MKH PB band

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev

0.0

2.0

4.0

6.0

8.0

10.0

12.0

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)

Eco World PE band Eco World PB band

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

O c t - 1 1

A p r - 1 2

O c t - 1 2

A p r - 1 3

O c t - 1 3

A p r - 1 4

(x)

Average

+1 Std dev

+2 Std dev

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

O c t - 1 1

A p r - 1 2

O c t - 1 2

A p r - 1 3

O c t - 1 3

A p r - 1 4

(x)

+1 Std dev

+2 Std dev

Average


15/39

Industry Focus

Property

Page 15

SP Setia PE band SP Setia PB band

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev

10.0

12.0

14.0

16.0

18.0

20.0

22.0

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev

1.0

1.2

1.4

1.6

1.8

2.0

2.2

J a n - 1 0

J u l -

1 0

J a n - 1 1

J u l -

1 1

J a n - 1 2

J u l -

1 2

J a n - 1 3

J u l -

1 3

J a n - 1 4

J u l -

1 4

(x)

UEM Sunrise PE band UEM Sunrise PB band

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev1.0

1.5

2.0

2.5

3.0

3.5

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)

Wing Tai Malaysia PE band Wing Tai Malaysia PB band

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev

0.0

2.0

4.0

6.0

8.0

10.0

12.0

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev

0.3

0.4

0.5

0.6

0.7

0.8

0.9

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)


16/39

Industry Focus

Property

Page 16

Hunza Properties PE band Hunza Properties PB band

Average

+1 std dev

+2 std dev

-1 std dev

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev

0.2

0.3

0.3

0.4

0.4

0.5

0.5

0.6

0.6

0.7

0.7

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)

E&O PE band E&O PB band

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev

0.0

10.0

20.0

30.0

40.0

50.0

60.0

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)

Average

+1 std dev

+2 std dev

-1 std dev

-2 std dev

0.0

0.5

1.0

1.5

2.0

2.5

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

J u l - 1 3

J a n - 1 4

J u l - 1 4

(x)

Sunway PE band Sunway PB band

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

A u g - 1 1

F e b - 1 2

A u g - 1 2

F e b - 1 3

A u g - 1 3

F e b - 1 4

(x)

+2 std dev

+1 std dev

-1 std dev

-2 std dev

Average

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

A u g - 1 1

F e b - 1 2

A u g - 1 2

F e b - 1 3

A u g - 1 3

F e b - 1 4

(x)

+2 std dev

+1 std dev

-1 std dev

-2 std dev

Average

Source: AllianceDBS, Companies, Bloomberg L.P.


17/39

Industry Focus

Property

Page 17

Stock ProfilesStock ProfilesStock ProfilesStock Profiles


18/39

Page 18

www.dbsvickers.com

ed: SGC / sa: WMT

Bloomberg: MKH MK | Reuters: METR.KL Refer to important disclosures at the end of this report

BUYBUYBUYBUY RMRMRMRM4.014.014.014.01 KLCIKLCIKLCIKLCI :::: 1,872.971,872.971,872.971,872.97 Price Target :Price Target :Price Target :Price Target : 12-Month RM 5.85

Potential Catalyst:Potential Catalyst:Potential Catalyst:Potential Catalyst: Stronger property sales and FFB production

AllianceDBSAllianceDBSAllianceDBSAllianceDBS vs Consensus:vs Consensus:vs Consensus:vs Consensus: First to cover the stock


Price Relative

8 4

1 3 4

1 8 4

2 3 4

2 8 4

3 3 4

3 8 4

4 3 4

0 .6

1 .1

1 .6

2 .1

2 .6

3 .1

3 .6

4 .1

J u l - 1 0 J u l- 1 1 J u l - 1 2 J u l- 1 3 J u l - 1 4

R e l a t i v e In d e xR M

M K H B h d (L H S ) R e la ti v e K L C I I N D E X (R H S )

Forecasts and Valuation

FYFYFYFY SepSepSepSep ((((RMRMRMRM m)m)m)m) 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF

Turnover 688 775 983 1,374

EBITDA 183 208 287 403Pre-tax Profit 136 184 261 377Net Profit 103 135 191 275Net Pft (Pre Ex.) 119 135 191 275EPS (sen) 24.7 32.3 45.5 65.7EPS Pre Ex. (sen) 28.4 32.3 45.5 65.7EPS Gth (%) 15 31 41 44EPS Gth Pre Ex (%) 63 14 41 44Diluted EPS (sen) 24.7 32.3 45.5 65.7Net DPS (sen) 7.5 8.3 8.3 12.5BV Per Share (sen) 272.4 253.1 290.2 347.5PE (X) 16.3 12.4 8.8 6.1PE Pre Ex. (X) 14.1 12.4 8.8 6.1P/Cash Flow (X) 15.4 7.5 10.9 9.3EV/EBITDA (X) 11.4 9.7 7.0 4.9Net Div Yield (%) 1.9 2.1 2.1 3.1

P/Book Value (X) 1.5 1.6 1.4 1.2Net Debt/Equity (X) 0.4 0.3 0.3 0.2ROAE (%) 12.0 13.4 16.7 20.6

Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0Consensus EPSConsensus EPSConsensus EPSConsensus EPS (sensensensen):::: 31.0 40.5 66.0Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 2 S: 0 H: 0

ICB IndustryICB IndustryICB IndustryICB Industry : Real EstateICB Sector:ICB Sector:ICB Sector:ICB Sector: Real Estate Investment & ServicesPrincipal Business:Principal Business:Principal Business:Principal Business: MKH is an established township developer inKajang/Semenyih and Greater Klang Valley. Its 16k ha oil palmestates in Indonesia has started to contribute significantlySource of all data: Company, AllianceDBS, Bloomberg

At A Glance Issued Capital (m shrs) 419 Mkt. Cap (RMm/US$m) 1,682 / 528 Major Shareholders

Chen Choy & Sons Realty (%) 43.1 Public Bank Grp Off Fund (%) 9.8

Free Float (%) 47.1 Avg. Daily Vol.(‘000) 572

Company Focus

MKH Bhd

Best proxy to booming Kajang• Resilient property sales riding on booming

Kajang/Semenyih growth corridor

• Exponential growth from plantation driven by3-year FFB volume CAGR of 20%

• Maintain high-conviction BUY, RM5.85 TP

Record high unbilled sales. MKH is on track to meet its

record high property sales target of RM800m for FY14 (vs

RM580m in FY13). It booked RM410m sales in 1HFY14, ofwhich RM96m is pre-sale booking. This has yet to include

the strong sales from Saville@Kajang (RM280m GDV)

which has seen 80% take-up despite being launched only

in late April. Thanks to the robust sales, unbilled sales is at

a record high of RM602m as at March, or 1.3x its FY13

property revenue.

Strong launch pipeline. MKH’s large tract of property

land bank in Kajang/Semenyih (490 acres) makes them the

prime beneficiary of rising land prices at this hotspot.

Upcoming launches for MKH include MKH Avenue

2@Kajang City (RM200m GDV, shop offices),

Saville@Cheras (RM280m, high-rise), and Hill Park Homes3@Semenyih (RM173m, 2-storey terrace houses). These

should be well-received due to their strategic locations and

affordable pricing.

Plantation a potential catalyst. FFB output hit 130k MT

in 1HFY14 (48% of our full-year forecast), and we

understand April FFB yield was strong. We expect

plantation contribution to rise to 33%/38% of FY14/15

group earnings (from 17% in FY13).

High conviction pick. We project MKH to register 32%

earnings CAGR over FY13-16F. MKH’s unrivalled strong

growth prospects in both the Property and Plantationsegments will drive a multi-year re-rating of the stock.


19/39

Company Focus

MKH Bhd

Page 19

Income Statement (RM m) Balance Sheet (RM m)

FYFYFYFY SepSepSepSep 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF FYFYFYFY SepSepSepSep 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF

Turnover 688 775 983 1,374 Net Fixed Assets 163 243 323 403Cost of Goods Sold (441) (416) (536) (801) Invts in Associates & JVs 28 31 34 37Gross ProfitGross ProfitGross ProfitGross Profit 247247247247 359359359359 447447447447 572572572572 Invt & Devt Properties 264 264 264 264Other Opng (Exp)/Inc (90) (154) (163) (173) Other LT Assets 713 763 784 806Operating ProfitOperating ProfitOperating ProfitOperating Profit 158158158158 205205205205 284284284284 400400400400 Cash & ST Invts 123 191 208 252Other Non Opg (Exp)/Inc 0 0 0 0 Dev Props held for sale 280 203 262 392Associates & JV Inc 11 3 3 3 Inventory 41 61 77 108Net Interest (Exp)/Inc (17) (23) (26) (26) Debtors 113 134 170 238Exceptional Gain/(Loss) (16) 0 0 0 Other Current Assets 561 526 637 865PrePrePrePre----tax Profittax Profittax Profittax Profit 136136136136 184184184184 261261261261 377377377377 Total AssetsTotal AssetsTotal AssetsTotal Assets 1,8511,8511,8511,851 2,0162,0162,0162,016 2,2502,2502,2502,250 2,6272,6272,6272,627Tax (29) (46) (65) (94)Minority Interest (3) (3) (5) (8) ST Debt 107 107 107 107Preference Dividend 0 0 0 0 Other Current Liab 182 199 252 353Net ProfitNet ProfitNet ProfitNet Profit 103103103103 135135135135 191191191191 275275275275 LT Debt 40 77 96 125Net Profit before Except. 119 135 191 275 Other LT Liabilities 152 152 152 152EBITDA 183 208 287 403 Shareholder’s Equity 951 1,061 1,216 1,457

Minority Interests 3 6 11 19Sales Gth (%) 26.2 12.5 26.9 39.7 Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 1,8511,8511,8511,851 2,0162,0162,0162,016 2,2502,2502,2502,250 2,6272,6272,6272,627EBITDA Gth (%) 59.8 13.8 38.1 40.4

Opg Profit Gth (%) 69.7 30.1 38.6 40.8 Non-Cash Wkg. Capital 339 250 289 388Net Profit Gth (%) 38.5 30.9 40.8 44.5 Net Cash/(Debt) (399) (331) (313) (270)Effective Tax Rate (%) 21.3 25.0 25.0 25.0Cash Flow Statement (RM m) Rates & Ratio

FYFYFYFY SepSepSepSep 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF FYFYFYFY SepSepSepSep 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF

Pre-Tax Profit 136 184 261 377 Gross Margins (%) 36.0 46.3 45.5 41.7Dep. & Amort. 14 0 0 0 Opg Profit Margin (%) 22.9 26.4 28.9 29.1Tax Paid (36) (9) (46) (65) Net Profit Margin (%) 15.0 17.5 19.4 20.0Assoc. & JV Inc/(loss) (11) (3) (3) (3) ROAE (%) 12.0 13.4 16.7 20.6Chg in Wkg.Cap. (6) 52 (58) (128) ROA (%) 6.2 7.0 8.9 11.3Other Operating CF 13 0 0 0 ROCE (%) 8.4 9.1 11.7 14.8Net Operating CFNet O erat in CFNet O eratin CFNet Operating CF 109109109109 224224224224 154154154154 181181181181 Div Payout Ratio (%) 25.3 25.8 18.3 19.0Capital Exp.(net) (174) (80) (80) (80) Net Interest Cover (x) 9.2 8.7 10.9 15.3Other Invts.(net) (24) (50) (21) (22) Asset Turnover (x) 0.4 0.4 0.5 0.6Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 54.9 58.1 56.5 54.2Div from Assoc & JV 34 0 0 0 Creditors Turn (avg days) 137.6 167.2 153.5 137.7Other Investing CF 0 0 0 0 Current Ratio (x) 2.1 1.9 1.9 1.9Net Investing CFNet Investin CFNet Investin CFNet Investing CF (164)164164(164) (130)130130(130) (101)101101(101) (102)102102(102) Quick Ratio (x) 0.7 0.8 0.8 0.8

Div Paid (13) (26) (35) (35) Net Debt/Equity (X) 0.4 0.3 0.3 0.2Chg in Gross Debt 49 0 0 0 Net Debt/Equity ex MI (X) 0.4 0.3 0.3 0.2Capital Issues 52 0 0 0 Capex to Debt (%) 33.4 15.3 15.3 15.3Other Financing CF 0 0 0 0 Z-Score (X) 0.0 0.0 0.0 0.0Net Financing CFNet Financing CFNet Financing CFNet Financing CF 88888888 (26)(26)(26)(26) (35)(35)(35)(35) (35)(35)(35)(35) N. Cash/(Debt)PS (sen) (114.2) (79.0) (74.8) (64.3)Currency Adjustments (20) 0 0 0 Opg CFPS (sen) 27.6 41.1 50.5 73.6Chg in Cash 13 68 18 44 Free CFPS (sen) (15.5) 34.4 17.6 24.0Quarterly / Interim Income Statement (RM m)

Segmental Breakdown / Key Assumptions

FYFYFYFY SepSepSepSep 3Q3Q3Q3Q2013201320132013 4Q4Q4Q4Q2013201320132013 1Q1Q1Q1Q2014201420142014 2Q2Q2Q2Q2014201420142014 FYFYFYFY SepSepSepSep 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF

Turnover 185 218 182 188 Revenues (RM m)Cost of Goods Sold (115) (142) (118) (113) Property development & 476 489 610 964Gross ProfitGross ProfitGross ProfitGross Profit 70707070 76767676 64646464 76767676 Hotel & property investment 32 34 36 38Other Oper. (Exp)/Inc (22) (16) (16) (24) Trading 67 72 78 85Operating ProfitOperating ProfitOperating ProfitOperating Profit 48484848 60606060 49494949 52525252 Manufacturing 9 9 10 10Other Non Opg (Exp)/Inc 0 0 0 0 Plantation 101 170 249 277Associates & JV Inc 0 1 1 1 TotalTotalTotalTotal 688688688688 775775775775 983983983983 1,3741,3741,3741,374Net Interest (Exp)/Inc (6) (2) (5) (7) EBIT (RM m)Exceptional Gain/(Loss) 2 (33) (20) 29 Property development & 115 118 153 239

PrePrePrePre----tax Profittax Profittax Profittax Profit 44444444 27272727 25252525 75757575 Hotel & property investment 15 15 16 17Tax (12) (2) (6) (19) Trading 4 5 5 6Minority Interest 0 0 (2) (5) Manufacturing 0 0 0 0Net ProfitNet ProfitNet ProfitNet Profit 32323232 24242424 17171717 51515151 Plantation 29 67 109 138Net profit bef Except. 30 57 37 21 TotalTotalTotalTotal 163163163163 205205205205 284284284284 400400400400EBITDA 48 61 50 53 EBIT Margins (%)

Property development & 24.2 24.1 25.1 24.7Sales Gth (%) 35.1 17.5 (16.2) 3.1 Hotel & property investment 46.9 45.0 45.0 45.0EBITDA Gth (%) 88.8 27.3 (18.6) 6.4 Trading 6.7 7.0 7.0 7.0Opg Profit Gth (%) 91.6 25.4 (19.4) 6.3 Manufacturing (2.3) 1.0 1.5 1.8Net Profit Gth (%) 155.0 (25.2) (30.8) 203.1 Plantation 28.3 39.2 43.8 49.9Gross Margins (%) 37.8 35.0 35.3 40.2 TotalTotalTotalTotal 23.723.723.723.7 26.426.426.426.4 28.928.928.928.9 29.129.129.129.1Opg Profit Margins (%) 26.0 27.7 26.7 27.5 Key AssumptionsNet Profit Margins (%) 17.4 11.1 9.2 26.9 CPO ASP (RM/MT) 2,525.5 2,545.1 2,617.9

FFB production (MT) 271,681. 340,780. 382,445. property sales (RMm) 580.8 728.6 896.6 1,058.0

Source: Company, AllianceDBS


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Page 20

www.dbsvickers.com

ed: SGC / sa: WMT

Bloomberg: SPSB MK | Reuters: SETI.KL Refer to important disclosures at the end of this report

BUYBUYBUYBUY RMRMRMRM3.523.523.523.52 KLCIKLCIKLCIKLCI :::: 1,872.971,872.971,872.971,872.97 (Upgrade from Hold)

Price Target :Price Target :Price Target :Price Target : 12-Month RM 4.10 (Prev RM 2.95)

PPPPotential Catalyst:otential Catalyst:otential Catalyst:otential Catalyst: M&A by largest shareholder PNB

DBSV vs Consensus:DBSV vs Consensus:DBSV vs Consensus:DBSV vs Consensus: More conservative sales assumptions


Price Relative

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S P S et ia (L H S) R e la tiv e K L CI IN D E X (R H S)


FYFYFYFY OctOctOctOct ((((RMRMRMRM m)m)m)m) 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF

Turnover 3,061 4,095 5,658 7,732

EBITDA 554 847 1,203 1,703Pre-tax Profit 570 725 986 1,456Net Profit 418 436 612 703Net Pft (Pre Ex.) 431 436 612 703EPS (sen) 16.9 17.6 24.7 28.4EPS Pre Ex. (sen) 17.4 17.6 24.7 28.4EPS Gth (%) 6 4 40 15EPS Gth Pre Ex (%) 9 1 40 15Diluted EPS (sen) 16.9 17.6 24.7 28.4Net DPS (sen) 10.6 7.9 11.1 12.8BV Per Share (sen) 235.1 242.5 252.9 264.9PE (X) 20.9 20.0 14.3 12.4PE Pre Ex. (X) 20.3 20.0 14.3 12.4P/Cash Flow (X) 13.0 184.4 25.5 17.6EV/EBITDA (X) 19.9 14.4 10.9 7.9Net Div Yield (%) 3.0 2.2 3.2 3.6

P/Book Value (X) 1.5 1.5 1.4 1.3Net Debt/Equity (X) 0.4 0.6 0.7 0.6ROAE (%) 8.7 7.8 10.5 11.6

Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0Consensus EPSConsensus EPSConsensus EPSConsensus EPS (sensensensen):::: 19.6 26.2 31.6Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 4 S: 4 H: 15

ICBICBICBICB IndustryIndustryIndustryIndustry : Real EstateICB Sector:ICB Sector:ICB Sector:ICB Sector: Real EstatePrincipal Business:Principal Business:Principal Business:Principal Business: Sector leader - largest residential propertydeveloper by market cap and sales

Source of all data: Company, AllianceDBS, Bloomberg

At A Glance Issued Capital (m shrs) 2,522 Mkt. Cap (RMm/US$m) 8,876 / 2,788 Major Shareholders

Permodalan Nasional (%) 53.1 Skim Amanah Saham (%) 15.5 KWAP (%) 7.2

Free Float (%) 19.3

Avg. Daily Vol.(‘000) 1,154

Company Focus

SP Setia

Poised to recover• CEO departure priced in; historical low PE and

P/BV valuation (at -1SD of mean)

• Large tract of quality and prime land bank tosustain long-term growth

• Record high RM11.2bn unbilled sales to supportearnings visibility

• Upgrade to Buy with RM4.10 TP

Robust outlook. Despite relatively weaker sentiment inthe property sector, we project SPSB will deliver strong 3-

year earnings CAGR of 18%, underpinned by record high

unbilled sales of RM11.2bn (4x FY13 property

development revenue). 7MFY14 property sales stood at

RM3.2bn, suggesting it is on track to meet FY14 target of

RM5bn. The strong 95% take-up for Battersea Phase 2

(GBP800m GDV; 2.3k psf ASP) launched in May will help

to grow unbilled sales in 2HFY14. We expect exponential

growth in FY16/17 following the handover of Battersea

Phase 1.

Strategic land bank. Given SPSB’s prime 4,782-acre land

bank (RM71bn GDV) at low holding cost, SPSB stands tobenefit the most from the steep land price appreciation in

recent years. It is poised to benefit from resilient demand

for its established township developments in Setia Alam

(712 acres undeveloped; RM3.50psf land cost) and Setia

Eco Hill (1,447 acres; RM10.2psf) which should continue to

see strong sales.

Upgrade to BUY, RM4.10 TP. Our TP is based on smaller

30% discount (50% previously) to our RNAV of RM5.86.

The CEO departure has been priced in as PE and P/BV

multiples are at historical lows at -1SD of mean. Strong

fundamentals should limit downside to the share price,

which is also supported by 3.2% FY15 dividend yield,based 60% historical payout. Re-rating catalyst could

come from potential M&A exercise which is likely to be

done above put option exercise price granted to Tan Sri

Liew Kee Sin at RM3.95/share.


21/39

Company Focus

SP Setia

Page 21

Income Statement (RM m) Balance Sheet (RM m)

FYFYFYFY OctOctOctOct 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF FYFYFYFY OctOctOctOct 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF

Turnover 3,061 4,095 5,658 7,732 Net Fixed Assets 122 894 1,463 1,361Cost of Goods Sold (2,506) (3,248) (4,455) (6,028) Invts in Associates & JVs 58 28 4 (16)Gross ProfitGross ProfitGross ProfitGross Profit 554554554554 847847847847 1,2031,2031,2031,203 1,7031,7031,7031,703 Invt & Devt Properties 5,932 5,833 5,737 5,642Other Opng (Exp)/Inc (13) (66) (154) (184) Other LT Assets 220 220 220 220Operating ProfitOperating ProfitOperating ProfitOperating Profit 541541541541 781781781781 1,0491,0491,0491,049 1,5191,5191,5191,519 Cash & ST Invts 2,243 1,911 1,885 2,293Other Non Opg (Exp)/Inc 0 0 0 0 Dev Props held for sale 2,693 1,922 2,163 2,992Associates & JV Inc 0 (30) (24) (19) Inventory 43 36 45 60Net Interest (Exp)/Inc (8) (25) (39) (43) Debtors 1,058 1,204 1,529 2,090Exceptional Gain/(Loss) (13) 0 0 0 Other Current Assets 73 654 1,108 1,242PrePrePrePre----tax Profittax Profittax Profittax Profit 570570570570 725725725725 986986986986 1,4561,4561,4561,456 Total AssetsTotal AssetsTotal AssetsTotal Assets 12,44212,44212,44212,442 12,70312,70312,70312,703 14,15314,15314,15314,153 15,88515,88515,88515,885Tax (151) (181) (246) (364)Minority Interest (1) (81) (94) (349) ST Debt 614 614 614 614Preference Dividend 0 0 0 0 Other Current Liab 2,343 1,547 1,937 2,621Net ProfitNet ProfitNet ProfitNet Profit 418418418418 436436436436 612612612612 703703703703 LT Debt 40 40 40 40Net Profit before Except. 431 463 645 743 Other LT Liabilities 5 5 5 5EBITDA 554 847 1,203 1,703 Shareholder’s Equity 5,526 5,700 5,944 6,226

Minority Interests (1) 80 175 524Sales Gth (%) 21.1 33.8 38.2 36.7 Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 12,44212,44212,44212,442 12,70312,70312,70312,703 14,15314,15314,15314,153 15,88515,88515,88515,885EBITDA Gth (%) 4.4 52.9 42.0 41.6

Opg Profit Gth (%) 4.6 44.3 34.4 44.7 Non-Cash Wkg. Capital 1,485 2,230 2,868 3,723Net Profit Gth (%) 6.1 4.3 40.3 15.0 Net Cash/(Debt) (2,286) (3,420) (4,168) (4,176)Effective Tax Rate (%) 26.5 25.0 25.0 25.0Cash Flow Statement (RM m) Rates & Ratio

FYFYFYFY OctOctOctOct 2020202013131313AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF FYFYFYFY OctOctOctOct 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF

Pre-Tax Profit 570 725 986 1,456 Gross Margins (%) 18.1 20.7 21.3 22.0Dep. & Amort. 13 66 154 184 Opg Profit Margin (%) 17.7 19.1 18.5 19.6Tax Paid (244) (151) (181) (246) Net Profit Margin (%) 13.7 10.6 10.8 9.1Assoc. & JV Inc/(loss) 0 30 24 19 ROAE (%) 8.7 7.8 10.5 11.6Chg in Wkg.Cap. 455 (582) (602) (876) ROA (%) 3.8 3.5 4.6 4.7Other Operating CF (125) (42) (38) (42) ROCE (%) 4.4 5.5 6.8 9.0Net Operating CFNet O erat in CFNet O eratin CFNet Operating CF 670670670670 47474747 342342342342 495495495495 Div Payout Ratio (%) 59.6 42.7 42.7 42.7Capital Exp.(net) (235) (839) (723) (82) Net Interest Cover (x) 67.4 30.8 26.7 35.2Other Invts.(net) (1,434) 0 0 0 Asset Turnover (x) 0.3 0.3 0.4 0.5Invts in Assoc. & JV (94) 0 0 0 Debtors Turn (avg days) 107.5 100.8 88.2 85.4Div from Assoc & JV 17 0 0 0 Creditors Turn (avg days) 272.1 223.1 147.8 142.3Other Investing CF 34 0 0 0 Current Ratio (x) 2.0 2.6 2.6 2.6Net Investing CFNet Investin CFNet Investin CFNet Investing CF (1,713)1,7131,713(1,713) ((839)839839839) (723)723723(723) (82)8282(82) Quick Ratio (x) 1.1 1.4 1.3 1.3

Div Paid (254) (261) (367) (422) Net Debt/Equity (X) 0.4 0.6 0.7 0.6Chg in Gross Debt 642 802 721 417 Net Debt/Equity ex MI (X) 0.4 0.6 0.7 0.7Capital Issues 1,329 0 0 0 Capex to Debt (%) 5.2 15.7 11.9 1.3Other Financing CF 26 (81) 0 0 Z-Score (X) 1.5 1.7 1.8 1.9Net Financing CFNet Financing CFNet Financing CFNet Financing CF 1,7431,7431,7431,743 459459459459 354354354354 (5)(5)(5)(5) N. Cash/(Debt)PS (sen) (97.3) (145.5) (177.3) (177.7)Currency Adjustments 0 0 0 0 Opg CFPS (sen) 8.6 25.4 38.1 55.3Chg in Cash 700 (332) (26) 408 Free CFPS (sen) 17.5 (31.9) (15.4) 16.7Quarterly / Interim Income Statement (RM m)

Segmental Breakdown / Key Assumptions

FYFYFYFY OctOctOctOct 3Q3Q3Q3Q2013201320132013 4Q4Q4Q4Q2013201320132013 1Q1Q1Q1Q2014201420142014 2Q2Q2Q2Q2014201420142014 FYFYFYFY OctOctOctOct 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFF

Turnover 762 900 722 952 Revenues (RM m)Cost of Goods Sold (590) (685) (546) (748) Construction 122 122 122 122Gross ProfitGross ProfitGross ProfitGross Profit 172172172172 215215215215 175175175175 204204204204 Property Development 2,810 3,844 5,407 7,481Other Oper. (Exp)/Inc (4) (4) (6) (7) Property & Investment 129 129 129 129Operating ProfitOperating ProfitOperating ProfitOperating Profit 168168168168 211211211211 170170170170 197197197197 TotalTotalTotalTotal 3,0613,0613,0613,061 4,0954,0954,0954,095 5,6585,6585,6585,658 7,7327,7327,7327,732Other Non Opg (Exp)/Inc 0 0 0 0 Pretax profit (RM m) Associates & JV Inc 0 0 (9) (15) Construction 5 5 5 5Net Interest (Exp)/Inc (12) (19) (14) (16) Property Development 533 714 988 1,463Exceptional Gain/(Loss) (12) (12) 0 0 Property & Investment 32 32 32 32

PrePrePrePre----tax Profittax Profittax Profittax Profit 144144144144 180180180180 147147147147 165165165165 0 (25) (39) (43)Tax (40) (52) (30) (47) TotalTotalTotalTotal 570570570570 725725725725 986986986986 1,4561,4561,4561,456Minority Interest (2) 0 (20) (44) Pretax Margins (%) Net ProfitNet ProfitNet ProfitNet Profit 102102102102 127127127127 97979797 74747474 Construction 4.1 4.1 4.1 4.1Net profit bef Except. 113 139 97 74 Property Development 19.0 18.6 18.3 19.6EBITDA 172 215 167 189 Property & Investment 24.7 24.7 24.7 24.7

TotalTotalTotalTotal 18.618.618.618.6 17.717.717.717.7 17.417.417.417.4 18.818.818.818.8Sales Gth (%) 7.1 18.2 (19.8) 32.0 Key Assumptions EBITDA Gth (%) 16.7 25.0 (22.4) 13.4 Property sales 10,501.3 5,477.2 4,521.2 4,275.1Opg Profit Gth (%) 17.1 25.7 (19.6) 15.8Net Profit Gth (%) 6.4 24.9 (24.0) (23.3)Gross Margins (%) 22.5 23.9 24.3 21.4Opg Profit Margins (%) 22.1 23.4 23.5 20.7Net Profit Margins (%) 13.4 14.1 13.4 7.8

Source: Company, AllianceDBS


22/39

www.dbsvickers.com

ed: TH / sa: WMT

BUYBUYBUYBUY RMRMRMRM5.085.085.085.08 KLCIKLCIKLCIKLCI :::: 1,872.971,872.971,872.971,872.97 (Initiating Coverage)

Price Target :Price Target :Price Target :Price Target : 12-Month RM 6.00

Reason for Report :Reason for Report :Reason for Report :Reason for Report : Initiation

Potential Catalyst:Potential Catalyst:Potential Catalyst:Potential Catalyst: Strong property sales, aggressive property

launches, earnings delivery


Price Relative

7 6

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E c o W o r ld D e v e lo p m e n t B h d ( LH S ) R e la t iv e K L C I IN D E X ( R H S )


FYFYFYFY OctOctOctOct ((((RMRMRMRM m)m)m)m) 2013201320132013AAAA 2014201420142014FFFF 2015201520152015FFFF 2016201620162016FFFFTurnover 156 84 942 2,318EBITDA 34 13 241 446Pre-tax Profit 30 10 103 267Net Profit 24 8 77 200Net Pft (Pre Ex.) 24 8 77 200EPS (sen) 9.6 1.2 11.8 30.4EPS Pre Ex. (sen) 9.6 1.2 11.8 30.4EPS Gth (%) 237 (87) 882 159EPS Gth Pre Ex (%) 237 (87) 882 159Diluted EPS (sen) 9.6 1.2 11.8 30.4Net DPS (sen) 0.0 0.0 0.0 0.0BV Per Share (sen) 125.8 378.6 390.3 420.8PE (X) 53.0 423.9 43.2 16.7PE Pre Ex. (X) 53.0 423.9 43.2 16.7P/Cash Flow (X) 42.5 122.1 nm nm

EV/EBITDA (X) 39.0 380.7 22.7 12.8Net Div Yield (%) 0.0 0.0 0.0 0.0P/Book Value (X) 4.0 1.3 1.3 1.2Net Debt/Equity (X) 0.1 0.7 0.8 0.8ROAE (%) 7.9 0.6 3.1 7.5

Consensus EPSConsensus EPSConsensus EPSConsensus EPS (sensensensen):::: 4.7 5.5 10.8Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 4 S: 1 H: 0

ICB IndustryICB IndustryICB IndustryICB Industry : FinancialsICB Sector:ICB Sector:ICB Sector:ICB Sector: Real Estate Investment & ServicesPrincipal Business:Principal Business:Principal Business:Principal Business: Township developer with 4,400 acres of landbank offering comprehensive range of products*13-month period for FY14 due to FYE change to Oct from Sep

Source of all data: Company, AllianceDBS, Bloomberg Finance L.P

At A Glance Issued Capital (m shrs) 253 Mkt. Cap (RMm/US$m) 1,287 / 404 Major Shareholders

Liew Tian Xiong (%) 35.1 Eco World Development Holdings (%) 20.0

Free Float (%) 24.5

Avg. Daily Vol.(‘000) 967

DBS Group Research . EquityDBS Group Research . EquityDBS Group Research . EquityDBS Group Research . Equity 21 Jul 2014

Malaysia Company Focus

Eco World Development BhdBloomberg: ECW MK | Reuters: ECOW.KL Refer to important disclosures at the end of this report

New kid with old hands• New lease of life with RM43bn GDV pipeline

projects under reinvigorated corporate identity,back by a highly experienced management team

• RM5bn sales target for the next two years tospearhead complete transformation

• Initiate with BUY and RM6.00 TP

DNA ofDNA ofDNA ofDNA of aaaa property bellwetherproperty bellwetherproperty bellwetherproperty bellwether.... ECW (formerly known as

Focal Aims), a relatively new property developer, is helmed byformer top executives of SP Setia. Since the takeover by Eco

World Development Holdings Sdn Bhd (20% stake; EWH) and

Liew Tian Xiong (35% stake; eldest son of Tan Sri Liew Kee

Sin – founder of SP Setia) in Nov13, ECW has proposed to

acquire development rights of eight subsidiaries from Eco

World Development Sdn Bhd (EWSB; 50% owned by EWH)

that will position the Group as the fastest-rising property

developer in Malaysia.

4,4004,4004,4004,400----acreacreacreacre land bank worth RM43.5bn GDVland bank worth RM43.5bn GDVland bank worth RM43.5bn GDVland bank worth RM43.5bn GDV will offer ECW

immediate presence in Klang Valley, Iskandar Malaysia and

Penang – Malaysia’s top property hotspots. The Group targets

to achieve RM5bn sales over two years, given the newprojects to be launched over FY14-15F.

ValueValueValueValue----accretive land acquisitionaccretive land acquisitionaccretive land acquisitionaccretive land acquisition in the pipelinein the pipelinein the pipelinein the pipeline.... Thanks to its

management’s track record, ECW is participating in the

redevelopment of the former Pudu Jail site at a 20-acre prime

Bukit Bintang land which could carry RM7bn GDV. The board

is still deliberating on the offer to acquire a 1.18-acre land in

Parramatta, Australia, and it could secure the 470-acre land in

Batu Kawan which we understand it is the frontrunner in the

request for proposal from the Penang state government.

Initiate with BUYInitiate with BUYInitiate with BUYInitiate with BUY.... We arrive at our TP of RM6.00, based on a

20% discount to our RNAV methodology (pre-share split). On

ex-all basis,

insights malaysia opportunities

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