23 April 2012
Affin Research sees significant boost to Ireka's bottomline in FY13-FY15 when four preperty development projects are launched as scheduled, target price RM 1.06
Ireka Corp Bhd’s has four property projects with a total gross development value (GDV) of around RM1.4bil ready for launch.
In addition to the Jalan Kia Peng joint venture with Aseana Properties Ltd, Ireka has bought two pieces of land in Kajang and Bandar Nilai Utama, earmarked for a gated industrial development and a residential development.
The construction group also intend to commence development of a piece of land it owns in Kajang into a high-rise commercial and residential property.
These new development projects are strategically located, hence management is confident of good take-up rates. The Bukit Mewah land is located near to the proposed Kajang MRT station and the Bandar Nilai Utama land is near to a golf course and tertiary institutions of learning.
In addition, the Jalan Kia Peng land is within the KLCC vicinity. All the four development projects are scheduled for launch between September 2012 and mid-2013.
With its 30% stake in the Jalan Kia Peng project and the three new property development projects of its own, Ireka now offers direct exposure to a GDV of about RM1bil. Assuming a reasonable take-up rate of 80% and a pre-tax margin of 15% (management is aiming closer to 20%), these projects could contribute a total profit before tax and profit after tax of about RM120mil and RM90mil respectively from the financial year ending March 31, 2013 (FY13) to FY15.
However, the group still has limited success in securing new external infrastructure and building projects to boost its depleting outstanding construction order book of RM312mil as at Dec 31, 2011. This brings a risk of having to sustain its recent annual construction billings of about RM400mil.
Currently, the group has a tender book of about RM6bil encompassing infrastructure and building projects in Klang and Johor. With the group’s established reputation in the contracting business as well as the large number of jobs available, we expect Ireka to secure some of the projects that it has tendered.
We upgrade the stock to a “buy” with a higher target price of RM1.06, which is a 30% discount to revised net asset value (RNAV). We see a significant boost to the bottomline of Ireka in FY13 to FY15 when the four property development projects are launched as scheduled.
Given the small issued share capital of the company the impact on the earnings per share and RNAV would be significant. We expect the stock to be re-rated when the property projects are launched.
The risks that are included are a sharp downturn in the global and hence Malaysian economy; higher interest rates and or tighter lending regulations affecting property demand; and extremely low stock liquidity.