IJM Properties has established a 50:50 joint-venture company, Astaka Tegas Bhd, to acquire and develop a parcel of leasehold land measuring 1,750 acres at Kuala Langat, Selangor, for RM587mil from Canal City Construction Sdn Bhd.
Another shareholders’ agreement was signed between IJM Construction Sdn Bhd and KEB Builders Sdn Bhd to establish a 50:50 joint-venture company, Ambang Usaha Sdn Bhd, to build the Shah Alam-Shah Alam 2 Expressway, and a network of flood mitigation canals, roads and bridges on the 5,439 acres of leasehold land in Kuala Langat under the Canal City project.
Canal City is a property development cum flood mitigation project in Kuala Selangor, which is located south of Putra Heights and UEP Subang Jaya.
Earlier, there was an agreement to sell another 1,304 acres of the leasehold land for RM412.2mil to Hui Wing Mau, the owner of the Shimao group, a leading property developer in Hong Kong and China.
IJM’s portion of construction works is estimated at more than RM500mil. This would boost its order book to RM2.5bil, including the RM693mil Kaseh Highway.
Based on 20% progress recognition in financial year (FY) 2005 and 30% recognition in FY06, we estimate that the project would contribute net profit of RM10mil and RM15mil respectively. The risk of non-payment would be low, given that proceeds from the land sale would be used to finance the construction costs.
As for the proposed land acquisition, the purchase price for the land works out to RM7.70 per sq ft, which we believe is a fair value for the land.
Due to the staggered payment, however, the joint venture company only needs to fork out not more than RM88mil per annum, over a seven-year period.
In terms of cash injection, we reckon IJM needs to fork out only RM29.3mil in 2005, and the land cost would likely be self-financing once property launches commence.
The only risk is delays in property launches or lower-than-expected take-up rates. However, we believe that take-up rates would be good, given that LBS Bina’s Bandar Saujana Putra, which is located close to the project, is having take-up rates in excess of 90%.
With a gross development value of RM4.5bil to be recognised over 10 to 12 years, we estimate that the project would contribute net profit of RM28.1mil (based on IJM’s 50% share) from FY06 onwards.
Coupled with the contribution from the construction of the canal and expressway, that works out to a net profit enhancement of 26% in FY06 to RM210.1mil.
We are maintaining our earnings forecast, pending finalisation of the agreements, as well as approvals from various regulatory approvals.
We also maintain our view that news flow on IJM would continue to be positive, going forward.