CapitaLand won't be expanding heavily in Malaysia for now

Iskandar Waterfront acquisition seen as a one-off.

Here's more from Maybank Kim Eng:

CapitaLand to take 51% stake in project. CapitaLand announced that together with Iskandar Waterfront Sdn Bhd (IWSB) and Temasek Holdings, it will acquire and develop a 3.1m-sq ft A2 Island at Danga Bay, within the Iskandar Region. CapitaLand, IWSB and Temasek will hold stakes of 51%, 40% and 9% in the project respectively.

Projected GDV estimated at SGD3.2b. The cost for the freehold land amounts to MYR811m (SGD324m), or MYR261 psf of land (SGD104 psf land). CapitaLand will lead in the refinement of the master-planning and the project development, which is envisaged to comprise a premier waterfront residential community (high-rise and landed), with a marina, shopping mall, F&B offerings, serviced residences, offices and recreational facilities, to be developed in phases over 10-12 years. With a total GFA of 11m sq ft, the project is estimated to generate a Gross Development Value of MYR8.1b (SGD3.2b).

Price appears attractive. In December 2012, HK-listed Chinese developer Country Garden Holdings had acquired 2.4m sq ft of land at Danga Bay for MYR900m, which works out to MYR376 psf of land, 44% higher than what CapitaLand’s consortium will be paying for A2 Island. Details at this point in time are sketchy given that it is a long-term project, but assuming net margins of 15%, we estimate the RNAV-accretion from the project at around 3 cents/share.

Leveraging on potential economies of scale. We expect CapitaLand to be able to reap some economies of scale, given that it is the project manager for the “Urban Wellness” project in Medini North, which is within the Nusajaya part of Iskandar Malaysia. The “Urban Wellness” project is a 50:50 joint venture between Singapore’s Temasek Holdings and Malaysia’s Khazanah Nasional.

Maintain BUY. We do not expect CapitaLand to significantly scale up its Malaysian exposure henceforth and China and Singapore are still expected to be the key markets going forward. Maintain BUY with target price unchanged at SGD4.27.