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Nomura Property Report (May 2011)
 

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    Nomura Property Report (May 2011) Nomura Property Report (May 2011) Document Transcript

    • Malaysia PropertyProperty EQUITY RESEARCH May 11, 2011Rate hike may hit sentiment, not fundamentals 1Q11 home prices up,affordability may be next focusAction: Bank Negara hiked rates by 25bps on 5 May; a 50bp hike in Anchor themes2011F is likely to up mortgage payments 4-7%, in our view Transactions continue to beFollowing Bank Negara’s 25bp rate hike to 3%, our Malaysia banks analyst supported by strong mass andJulian Chua expects banks to raise the base lending rate (BLR) by 25- secondary market; however, in30bps. Our sensitivity analysis shows that mortgage payments could rise our view, valuations of bigger4-7% for a 50bp hike in 2011F, which in our view, may impact sentiment players (closing onmore than actual mortgage payments. While we remain confident that peaks)already factor in suchMalaysia’s young demographic makeup is likely to ensure a constant fundamentals. We prefer mid-demand for properties, we believe affordability is likely to come into focus cap and landbank re-ratingover the next few months. plays-Mah Sing and UEM Land.Catalyst: Watch for new sales launches, debates on housing Nomura vs consensusaffordability Consensus remains mostlyOur 27 April sector update highlighted a list of upcoming launches that bullish; we however believewere skewed towards properties worth RM1mn and above. Newly strong fundamentals are notreleased 1Q11 average prices recently showed continued sequential new news and recommendappreciation in condo prices in the Klang Valley, and semi-detached and being selective.detached houses in Selangor. Research analystsRecap of our sector call: Staying selective as bigger name valuationsclose to peaks; top pick Mah Sing Malaysia PropertyIn general, Malaysian property stocks have outperformed the KLCI by 5% Jacinda Loh - NSMytd. The best performer in our coverage has been Mah Sing (+37.5% ytd jacinda.loh@nomura.com +60 3 2027 6889outperformance) and the worst has been SP Setia (+3.7% ytd Raashi Gupta - NFASLoutperformance). Our top pick remains Mah Sing; the company recently raashi.gupta@nomura.comrevised its GDV guidance upwards for existing projects (mainly Southbay +91 22 4053 3779City and Icon City), resulting in remaining GDV + unbilled sales as of now(prior to the results release at end-May) to move from c.RM12bn toRM14.1bn.Fig. 1: Stocks for Action Price Price P/E P/E Stock Ticker Rating Target Upside (RM) FY11F FY12F (RM) Mah Sing MSGB MK BUY 2.57 3.08 19.8 17.1 14.3 SP Setia SPSB MK NEUTRAL 4.09 4.67 14.2 21.6 17.5 Malaysian Resources MRC MK NEUTRAL 2.16 2.42 12.0 37.3 34.7 See Appendix A-1 for analyst Corporation certification and important UEM Land disclosures. Analysts employed ULHB MK BUY 2.71 3.29 21.4 43.0 36.8 by non US affiliates are not Holdings registered or qualified asSource: Nomura research, Bloomberg research analysts with FINRA in the US.Rating: See report end for details of Nomura’s rating system.
    • Nomura | AEJ Malaysia Property May 11, 2011Overall view of 50bp hike for 2011 = 4-7% impact on mortgagepaymentsBased on pre-hike financing rates of 4% on average (BLR – 2.3%), monthly mortgagepayments are likely to rise by 4-7% for a further 50bp increase in the OPR (as per our in-house forecasts – the first 25bp hike occurred on May 5; we expect another 25bp hike in3Q11).Our Malaysia banks analyst Julian Chua however also believes that what remains to beseen is whether banks will try to pass through additional costs arising from the 100bpincrease in the SRR to consumers. At a property launch last weekend, we noticed banksoffering BLR minus 2.4-2.45% with reduced lock-in periods of three years (from BLRminus 2.3% and five-year lock-in periods a few months back), implying greatercompetition among banks for the consumer loans business.Exhibits 1 and 2 provide a sensitivity chart and table of mortgage payments to lendingrate hikes. As such, even if the actual impact of the recent OPR hike may only cause aminor impact on mortgage payments, overall sentiment or the inclination to upgradehomes may be affected.Fig. 2: Sensitivity chart: Mortgage payment to rate hikes Fig. 3: Sensitivity table: Mortgage payments to rate hike 15 20 25 30 35 220 20 years 25 years 30 years 35 years 4.0% - - - - - 200 4.5% 3% 4% 5% 6% 7% 180 5.0% 7% 9% 11% 12% 14% 160 5.5% 10% 14% 16% 19% 21% 140 6.0% 14% 18% 22% 26% 29% 6.5% 18% 23% 28% 32% 36% 120 7.0% 22% 28% 34% 39% 44% 100 7.5% 25% 33% 40% 46% 52% 80 8.0% 29% 38% 46% 54% 60% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 8.5% 33% 43% 53% 61% 69% 9.0% 37% 48% 59% 69% 77%Source: Nomura Research Source: Nomura ResearchIndustry sources (namely, the Malaysian Real Estate and Housing DevelopersAssociation (REHDA) generally expect double-digit price appreciation (c. 13%) inresidential properties for 2011, and while we continue to expect transaction volumes andvalues this year to be supported by a strong secondary market and mass markettransactions (just like it was last year) due to a young underlying Malaysian demographicprofile, we believe the key focus in the sector over the coming months will likely beaffordability for the larger part of the middle-income Malaysian population (andincidentally, a key voter pool in urban areas).While there will always be a cash-rich older generation to help its young buy homes, webelieve that a stronger upside to support a structural long-term residential property boomis continued affordability levels, when every working person is able to afford a house. Formore details on our affordability analyses, please see our 8 April 2011 report, “MassMarket or Million Dollars, Dear?” athttp://www.nomura.com/research/getpub.aspx?pid=428887Our analysis of upcoming launches points to a higher number of launches priced overRM1mn (as detailed in our 27 April sector update here athttp://www.nomura.com/research/getpub.aspx?pid=432869). 2
    • Nomura | AEJ Malaysia Property May 11, 2011Next 6 months in Malaysia property – trying to look aheadWe continue to expect that property transactions will likely remain supported into 2011on the back of continued favourable demographics which have driven up the volume ofsecondary mass market transactions.Analysing the correlation of residential sales and GDP growth, we find that GDP growthtends to lead residential property values at the major economic turns by about 1-2quarters. 1Q and 2Q numbers tend to be weaker with transactions picking up throughoutthe year.As such, unless the market sees strong and surprising sales numbers even in 1Q and2Q breaking away from seasonal trends, we think the current premium valuations fornames like SP Setia have priced in most good news. Recent anecdotal evidencesuggests better performance for mass market launches (while most developers arepositioned in mid- to high end), while the official Property Market Report 2010 releasedby the Valuation and Property two weeks ago highlighted a moderation in overall primarysales performance y-y (47% in 2010 from 59% in 2009).Fig. 4: GDP Growth tends to lead residential property sales values at recent economic turns 10.0% 10,000.0 8.0% 8,500.0 6.0% 7,000.0 4.0% 5,500.0 2.0% 4,000.0 0.0% 2,500.0 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 -2.0% 1,000.0 -4.0% -500.0 -6.0% -2,000.0 -8.0% -3,500.0 Residential sales value of 4 key states Real GDP GrowthSource: Department of Statistics, Valuation and Property Services Department; residential values used are for the 4 key Malaysian states 3
    • Nomura | AEJ Malaysia Property May 11, 2011Fig. 5: Average prices in KL, Selangor and Johor Sequential 4Q10 Sequential 3Q10 From trough to Average transaction price (RM) 1Q11 4Q10 3Q10 1Q10 1Q09 1Q08 1Q07 to 1Q11 (%) to 4Q10 (%) current (%) KL 1-1 1/2 Storey Terraced 338,191 326,207 321,981 328,215 258,359 254,222 249,360 4 1 31 2-3 Storey Terraced 554,550 413,160 444,644 395,805 2-2 1/2 Storey Semi Detach 1,957,390 2,012,829 1,719,709 2,053,312 1,423,750 1,206,000 1,130,332 (3) 17 37 Detached 2,082,840 2,247,765 2,345,980 2,309,043 1,466,333 1,970,125 1,818,131 (7) (4) 42 Cluster 114,250 118,200 122,500 99,500 104,714 96,000 (3) (4) 9 Low Cost House 195,125 181,138 157,463 147,667 130,750 131,200 8 15 Flat 134,272 128,297 114,899 119,007 109,671 100,955 96,292 5 12 22 Condominium 478,709 431,094 406,320 454,295 395,281 383,305 323,221 11 6 21 Low Cost Flat 72,890 71,763 72,449 68,120 69,955 72,556 67,037 2 (1) 4 Selangor 1-1 1/2 Storey Terraced 181,771 189,208 174,834 179,467 168,040 159,191 161,028 (4) 8 8 2-3 Storey Terraced 277,050 287,146 270,922 1-1 1/2 Storey Semi 301,835 204,333 368,243 312,905 217,917 231,100 341,000 48 (45) 39 2-3 Storey Semi Detached 874,006 927,831 810,094 786,179 672,775 598,385 627,522 (6) 15 30 Detached 1,041,392 819,902 744,182 826,806 644,850 794,229 564,625 27 10 61 Cluster 242,071 160,600 188,917 Low Cost House 99,453 106,568 96,434 97,997 90,774 90,300 84,479 (7) 11 10 Flat 102,180 95,294 98,208 100,706 92,258 98,388 79,945 7 (3) 11 Condominium 226,816 211,490 210,326 216,173 172,876 177,370 163,312 7 1 31 Low Cost Flat 65,854 62,811 62,724 62,828 60,412 60,125 60,550 5 0 9 Johor 1-1 1/2 Storey Terraced 152,990 149,052 146,530 138,358 137,233 130,612 137,432 3 2 11 2-3 Storey Terraced 188,140 177,542 176,888 1-1 1/2 Storey Semi 212,827 206,548 207,119 195,951 209,215 200,227 188,755 3 (0) 2 2-3 Storey Semi Detached 411,527 411,650 411,953 408,113 404,452 380,286 312,004 (0) (0) 2 Detached 346,682 271,375 375,431 186,176 248,168 254,656 263,359 28 (28) 40 Cluster 420,257 373,797 267,114 414,712 323,706 12 40 30 Low Cost House 56,302 53,878 59,196 43,832 57,607 48,598 51,241 4 (9) (2) Flat 63,657 74,929 60,143 51,769 78,306 65,600 (15) 25 (19) Condominium 198,681 198,444 220,586 237,564 175,567 248,632 211,431 0 (10) 13 Low Cost Flat 35,666 33,335 36,000 33,636 34,031 26,290 33,778 7 (7) 5Note: Trough is 1Q11 vs 1Q09 (ie, over past two years)Source: CEIC, Valuation and Property Services DepartmentMeanwhile, recently released 1Q11 average prices (by Valuation and Property ServicesDepartment) showed prices continued to climb for condos in Klang Valley, and certainlanded properties. The high-end landed properties in KL (between RM1-2mn) saw aslight slowdown in price performance.Recapping our sector call – stay selectiveWe continue to recommend staying selective and focusing on names with re-ratingstories as news of sales launches, and good profit performance have been baked intovaluations of leading names like SP Setia (NEUTRAL). Our top pick remains Mah Singgiven its lower P/Es, supported by above-average ROEs and the high dividend yields. Itrecently revised its RNAV guidance for a few projects post its annual review of projects,the main ones being Southbay City (from RM911mn to RM2,091mn), Icon City (upwardsby about RM200mn) and Kinrara Residence (upwards by about RM136m) largely due tohigher pricing from project GDVs that have not been revised for more than a year. 4
    • Nomura | AEJ Malaysia Property May 11, 2011Fig. 6: Mah Sing Projects breakup, FY10 vs 1QFY11 FY 2010 1Q11 Residential 7214 7279 Commercial 3851 6173.7 Industrial 919 610 Total 11984 14062.7Source: Company dataFig. 7: Performance over KLCI index (ytd) Stock Outperform ance over KLCI index ytd SP Setia 1.9% Mah Sing 38.4% UEM Land 6.7% MRCB 9.2%Note: Pricing as of 9 May 2011Source: BloombergFig. 8: Valuation comparison: P/E ratio Nom ura Curr Price FY11F EPS FY12F EPS Ticker FY11F P/E Grow th (%) FY12F PE Rating (RM) (RM) (RM) Mah Sing MSGB MK Buy 2.57 0.18 14.3 0.22 22% 11.7 SP Setia Berhad SPSB MK Neutral 4.09 0.19 21.6 0.23 24% 17.5 Malaysian Resources Corporation Berhad MRC MK Neutral 2.16 0.06 37.3 0.06 8% 34.7 UEM Land Holdings Berhad ULHB MK Buy 2.71 0.06 43.0 0.07 17% 36.8 IGB Corporation Berhad IGB MK Not rated 2.13 0.13 16.8 0.14 9% 15.3 IJM Land Berhad IJMLD MK Not rated 2.77 0.16 17.6 0.18 15% 15.4 KLCC Properties KLCC MK Not rated 3.27 0.24 13.5 0.26 9% 12.4 Sunw ay City Berhad SCITY MK Not rated 4.69 0.42 11.2 0.48 15% 9.7 Sunw ay Holdings Berhad SGW MK Not rated 2.38 0.27 8.7 0.31 13% 7.7 Total/Wtd avg 0.15 26.20 0.18 22.62Note: Pricing as of 9 May 2011Source: Bloomberg consensus estimates for not rated companies, Nomura estimatesFig. 9: Valuation comparison: P/B ratio Nom ura Curr Price FY11F FY12F Ticker FY11F P/BV Grow th (%) FY12F P/BV Rating (RM) BVPS (RM) BVPS (RM) Mah Sing MSGB MK Buy 2.57 1.19 2.2 1.32 11% 1.9 SP Setia Berhad SPSB MK Neutral 4.09 3.50 1.2 3.63 4% 1.1 Malaysian Resources Corporation Berhad MRC MK Neutral 2.16 0.88 2.5 0.92 5% 2.3 UEM Land Holdings Berhad ULHB MK Buy 2.71 1.13 2.4 1.23 9% 2.2 IGB Corporation Berhad IGB MK Not rated 2.13 2.13 1.0 2.22 4% 1.0 IJM Land Berhad IJMLD MK Not rated 2.77 1.61 1.7 1.774 10% 1.6 KLCC Properties KLCC MK Not rated 3.27 4.48 0.7 4.688 5% 0.7 Sunw ay City Berhad SCITY MK Not rated 4.69 5.64 0.8 6.12 8% 0.8 Sunw ay Holdings Berhad SGW MK Not rated 2.38 1.65 1.4 1.96 18% 1.2 Total/Wtd avg 2.28 1.69 2.42 1.57Note: Pricing as of 9 May 2011Source: Bloomberg consensus estimates for not rated companies, Nomura estimates 5
    • Nomura | AEJ Malaysia Property May 11, 2011Fig. 10: Valuation comparison: Dividend yield Nom ura Curr Price FY11F DPS FY11F Yield FY12F DPS FY12F Yield Ticker Grow th (%) Rating (RM) (RM) (%) (RM) (%) Mah Sing MSGB MK Buy 2.57 0.07 3.0 0.09 29% 3.7 SP Setia Berhad SPSB MK Neutral 4.09 0.13 2.1 0.16 23% 2.6 Malaysian Resources Corporation Berhad MRC MK Neutral 2.16 0.01 0.5 0.01 5% 0.5 UEM Land Holdings Berhad ULHB MK Buy 2.71 0.00 0.0 0.00 0% 0.0 IGB Corporation Berhad IGB MK Not rated 2.13 0.04 1.6 0.04 6% 1.7 IJM Land Berhad IJMLD MK Not rated 2.77 0.026 1.0 0.031 19% 1.1 KLCC Properties KLCC MK Not rated 3.27 0.11 3.3 0.12 7% 3.6 Sunw ay City Berhad SCITY MK Not rated 4.69 0.10 2.5 0.12 14% 2.8 Sunw ay Holdings Berhad SGW MK Not rated 2.38 0.03 1.5 0.04 12% 1.6 Total/Wtd avg 0.05 1.34 0.06 1.56Note: Pricing as of 9 May 2011Source: Bloomberg consensus estimates for not rated companies, Nomura estimatesFig. 11: Valuation comparison: ROE (%) Ticker Nom ura Rating Curr Price (RM) FY11F ROE (%) FY12F ROE (%) Mah Sing MSGB MK Buy 2.57 15.5 17.2 SP Setia Berhad SPSB MK Neutral 4.09 8.0 7.5 Malaysian Resources Corporation Berhad MRC MK Neutral 2.16 6.7 6.9 UEM Land Holdings Berhad ULHB MK Buy 2.71 8.8 8.1 IGB Corporation Berhad IGB MK Not rated 2.13 5.8 5.9 IJM Land Berhad IJMLD MK Not rated 2.77 11.2 11.4 KLCC Properties KLCC MK Not rated 3.27 5.4 4.8 Sunw ay City Berhad SCITY MK Not rated 4.69 7.5 7.9 Sunw ay Holdings Berhad SGW MK Not rated 2.38 14.8 14.5 Total/Wtd avg 8.72 8.53Note: Pricing as of 9 May 2011Source: Bloomberg consensus estimates for not rated companies, Nomura estimatesValuation Methodology and RisksMah SingValuation Methodology - We peg Mah Sing’s price target at RM3.08, at parity to ourRNAV-based and diluted fair value (after accounting for the proposed convertibles)derived from net present value of profits from on-going and future projects at a discountrate of 9%.Investment Risks: 1) Project delays. Any project delays or disappointing take-up ratescould dent our earnings forecasts. Profit margin could also vary at different stages ofbilling — a slower actual schedule might result in a difference between actual reportednet profit and our estimates. Project delays could arise from longer-than-expectedapproval/completion on land acquisition and building designs. Delays to key projectssuch as Icon City, Garden Plaza or Southbay could affect our projections to a greater 6
    • Nomura | AEJ Malaysia Property May 11, 2011degree compared to the rest of its projects. 2) General economic conditions. Thecompany’s operational as well as stock performance is closely tied to general economicconditions and consumer sentiment. Any contractions in GDP growth or unexpectedgovernment policy measures to curb sentiment in the property sector are downside risksto our call.SP SetiaValuation Methodology - We peg SPSB’s price target at RM4.67, at parity to ourRNAV-based and diluted fair value (after accounting for any warrants conversion),derived from a combination of a net present value of profits from ongoing projects at adiscount rate of 9% and revaluation surplus of land values above their book value.Investment Risks: 1) Any project delays or disappointing take-up rates could dent ourearnings forecasts. Profit margin could also vary at different stages of billing – a sloweractual schedule might result in a difference between actual reported net profit and ourestimates. Project delays could arise from longer-than-expected approval/completion onland acquisition and building designs. 2) Project concentration in Johor / Klang Valley -While the company has stepped up its diversification efforts in recent years by securingprojects in Vietnam and China, the bulk of its portfolio still consists of projects inMalaysia, and in particular, residential projects in Johor and Klang Valley. Its operationalas well as stock performance is therefore closely tied to the Johor and Klang Valleyresidential markets. 3) Double dip or recessionary scenario occurring moving forward.Upside risks include further RNAV-enhancing landbanking acquisitions and higher thanexpected sales and take-up rates.Malaysian ResourcesValuation Methodology – We peg MRCB’s price target at RM2.42, at parity to ourRNAV-based fair value, derived from 1) the net present value of profits from its propertysegment at 10% discount rate, 2) valuing the construction profits at 15x PE FY12F(FY12F earnings of RM45.4mn) based on the multiples used for other constructionstocks in our rating universe, 3) valuing the two toll concessions using a 10% discountrate.Investment Risks: Downside risks exist should: 1) project billings be delayed; 2) landbank / order book replenishment remain weak; or 3) slowdown in the economy, doubledip or recessionary scenario moving forward. Upside risks include faster-than-expectedorder book wins and faster progress billing pace.UEM LandValuation Methodology – We peg ULHB’s price target at RM3.29, at parity to ourRNAV-based fair value, derived from a combination of a net present value of profits fromon-going projects at a discount rate of 10% and revaluation surplus of its landbank aboveits book value.Investment Risks: Downside risks to our call include developments that couldjeopardise progress in developing Nusajaya, which comprises 99% of the landbank: 1)advent of a recession could derail the development in Nusajaya; 2) negative newsflow onland sales / deal progress; 3) any reversal in the positive tone and progress in Malaysia-Singapore relations as negotiations continue; 4) political events, eg, election upsets thatcould encroach on UEM Land’s position as a strategic Khazanah holding and change theregulatory environment; 5) delayed launches / project delays which could lead toearnings downside as Nusajaya is less concentrated than the markets of Selangor andKL; 6) immediate conversion of the RCPS which could present near-term dilution; and 7)any restrictive moves to curb the Malaysian property market. 7
    • Nomura | AEJ Malaysia Property May 11, 2011Appendix A-1Analyst CertificationI, Jacinda Ee Wenn Loh, hereby certify (1) that the views expressed in this Research report accurately reflect my personal viewsabout any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is orwill be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part ofmy compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc.,Nomura International plc or any other Nomura Group company.Issuer Specific Regulatory DisclosuresMentioned companiesIssuer name Ticker Price Price date Stock rating Sector rating DisclosuresMah Sing Group MSGB MK 2.57 MYR 09-May-2011 Buy Not ratedSP Setia SPSB MK 4.09 MYR 09-May-2011 Neutral Not ratedMalaysian Resources MRC MK 2.16 MYR 09-May-2011 Neutral Not ratedUem Land Holdings Bhd ULHB MK 2.71 MYR 09-May-2011 Buy Not ratedPrevious RatingIssuer name Previous Rating Date of changeMah Sing Group Not Rated 08-Feb-2011SP Setia Buy 17-Jan-2011Malaysian Resources Not Rated 27-Oct-2010Uem Land Holdings Bhd Not Rated 27-Oct-2010Mah Sing Group (MSGB MK) 2.57 (09-May-2011) Buy (Sector rating: Not rated)Rating and target price chart (three year history) Date Rating Target price Closing price 08-Feb-2011 3.08 2.63For explanation of ratings refer to the stock rating keys located after chart(s)Valuation Methodology We peg Mah Sing’s price target at RM3.08 at parity to our RNAV-based and diluted fair value (afteraccounting for the proposed convertibles) derived from net present value of profits from on-going and future projects at adiscount rate of 9%.Risks that may impede the achievement of the target price 1) Project delays. Any project delays or disappointing take-uprates could dent our earnings forecasts. Profit margin could also vary at different stages of billing — a slower actual schedulemight result in a difference between actual reported net profit and our estimates. Project delays could arise from longer-than-expected approval/completion on land acquisition and building designs. Delays to key projects such as Icon City, Garden Plazaor Southbay could affect our projections to a greater degree compared to the rest of its projects. 2)General economic conditions.The company’s operational as well as stock performance is closely tied to general economic conditions and consumer sentiment.Any contractions in GDP growth or unexpected government policy measures to curb sentiment in the property sector aredownside risks to our call. 8
    • Nomura | AEJ Malaysia Property May 11, 2011SP Setia (SPSB MK) 4.09 (09-May-2011) Neutral (Sector rating: Not rated)Rating and target price chart (three year history) Date Rating Target price Closing price 22-Mar-2011 4.67 4.10 17-Jan-2011 4.59 4.47 17-Jan-2011 Neutral 4.47 27-Oct-2010 4.07 3.51 19-May-2010 3.37 2.65 19-May-2010 Buy 2.65 20-Mar-2009 1.76 2.00 02-Oct-2008 1.77 2.07 01-Sep-2008 1.84 2.25 01-Sep-2008 Reduce 2.25For explanation of ratings refer to the stock rating keys located after chart(s)Valuation Methodology We peg SPSB’s price target at RM4.67 at parity to our RNAV-based and diluted fair value (afteraccounting for any warrants conversion), derived from a combination of a net present value of profits from ongoing projects at adiscount rate of 9% and revaluation surplus of land values above their book value.Risks that may impede the achievement of the target price 1) Any project delays or disappointing take-up rates could dentour earnings forecasts. Profit margin could also vary at different stages of billing – a slower actual schedule might result in adifference between actual reported net profit and our estimates. Project delays could arise from longer-than-expectedapproval/completion on land acquisition and building designs. 2)Project concentration in Johor / Klang Valley - While thecompany has stepped up its diversification efforts in recent years by securing projects in Vietnam and China, the bulk of itsportfolio still consists of projects in Malaysia, and in particular, residential projects in Johor and Klang Valley. Its operational aswell as stock performance is therefore closely tied to the Johor and Klang Valley residential markets. 3)Double dip orrecessionary scenario occurring moving forward. Upside risks include further RNAV-enhancing landbanking acquisitions andhigher than expected sales and takeup rates.Malaysian Resources (MRC MK) 2.16 (09-May-2011) Neutral (Sector rating: Not rated)Rating and target price chart (three year history) Date Rating Target price Closing price 08-Apr-2011 2.42 2.31 27-Oct-2010 2.13 2.05 27-Oct-2010 Neutral 2.05 04-May-2010 Not Rated 1.51 19-Aug-2008 0.60 0.71 19-Aug-2008 Sell 0.71For explanation of ratings refer to the stock rating keys located after chart(s)Valuation Methodology We peg MRCB’s price target at RM2.42 at parity to our RNAV-based fair value, derived from 1) Thenet present value of profits from its property segment at 10% discount rate 2) Valuing the construction profits at 15x PE FY12F 9
    • Nomura | AEJ Malaysia Property May 11, 2011(FY12F earnings of RM45.4 mn) based on the multiples used for other construction stocks in our rating universe 3) Valuing thetwo toll concessions using a 10% discount rate.Risks that may impede the achievement of the target price Downside risks exist should: 1) project billings be delayed;2)landbank / order book replenishment remain weak; or 3) slowdown in the economy, double dip or recessionary scenario movingforward. Upside risks include faster-than-expected order book wins and faster progress billing pace.Uem Land Holdings Bhd (ULHB MK) 2.71 (09-May-2011) Buy (Sector rating: Not rated)Rating and target price chart (three year history) Date Rating Target price Closing price 28-Feb-2011 3.29 2.70 27-Oct-2010 2.88 2.29 27-Oct-2010 Buy 2.29For explanation of ratings refer to the stock rating keys located after chart(s)Valuation Methodology We peg ULHB’s price target at RM3.29 at parity to our RNAV-based fair value, derived from acombination of a net present value of profits from on-going projects at a discount rate of 10% and revaluation surplus of itslandbank above its book value.Risks that may impede the achievement of the target price Downside risks to our call include developments that couldjeopardise progress in developing Nusajaya, which comprises 99% of the landbank: 1) advent of a recession could derail thedevelopment in Nusajaya; 2) negative newsflow on land sales/dealprogress; 3)any reversal in the positive tone and progress inMalaysia-Singapore relations as negotiations continue; 4) political events, eg, election upsets that could encroach on UEMLand’s position as a strategic Khazanah holding and change the regulatory environment;5)delayed launches/project delayswhich could lead to earnings downside as Nusajaya is less concentrated than the markets of Selangor and KL;6)immediateconversion of the RCPS which could present near-term dilution; and 7)any restrictive moves to curb the Malaysian propertymarket. 10
    • Nomura | AEJ Malaysia Property May 11, 2011Important DisclosuresOnline availability of research and additional conflict-of-interest disclosuresNomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM, REUTERS, BLOOMBERG andTHOMSON ONE ANALYTICS. For clients in Europe, Japan and elsewhere in Asia it is available on NOMURA.COM, REUTERS andBLOOMBERG.Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www.nomura.com/research orrequested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email grpsupport-eu@nomura.com for technical assistance.The analysts responsible for preparing this report have received compensation based upon various factors including the firms total revenues, aportion of which is generated by Investment Banking activities.Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for thesales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content ofresearch reports in which their names appear.Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarilyresponsible for marketing Nomura’s Equity Research product in the sector for which they have coverage. Marketing Analysts may alsocontribute to research reports in which their names appear and publish research on their sector.Distribution of ratings (US)The distribution of all ratings published by Nomura US Equity Research is as follows:38% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 4% of companies with thisrating are investment banking clients of the Nomura Group*.55% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 1% of companies with thisrating are investment banking clients of the Nomura Group*.7% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 0% of companies with thisrating are investment banking clients of the Nomura Group*.As at 31 March 2011.*The Nomura Group as defined in the Disclaimer section at the end of this report.Distribution of ratings (Global)The distribution of all ratings published by Nomura Global Equity Research is as follows:49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 37% of companies with thisrating are investment banking clients of the Nomura Group*.40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies withthis rating are investment banking clients of the Nomura Group*.11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 16% of companies withthis rating are investment banking clients of the Nomura Group*.As at 31 March 2011.*The Nomura Group as defined in the Disclaimer section at the end of this report.Explanation of Nomuras equity research rating system in Europe, Middle East and Africa, US and Latin America forratings published from 27 October 2008The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock.Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited managementdiscretion. In most cases, the fair value will equal the analysts assessment of the current intrinsic fair value of the stock using an appropriatevaluation methodology such as discounted cash flow or multiple analysis, etc.STOCKSA rating of Buy, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months.A rating of Neutral, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months.A rating of Reduce, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months.A rating of Suspended, indicates that the rating and target price have been suspended temporarily to comply with applicable regulationsand/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transactioninvolving the company.Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks(accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology.SECTORSA Bullish stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months.A Neutral stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months.A Bearish stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months.Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI EmergingMarkets ex-Asia.Explanation of Nomuras equity research rating system for Asian companies under coverage ex Japan published from30 October 2008 and in Japan from 6 January 2009STOCKSStock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,subject to limited management discretion. In most cases, the Target Price will equal the analysts 12-month intrinsic valuation of the stock,based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc.A Buy recommendation indicates that potential upside is 15% or more. 11
    • Nomura | AEJ Malaysia Property May 11, 2011A Neutral recommendation indicates that potential upside is less than 15% or downside is less than 5%.A Reduce recommendation indicates that potential downside is 5% or more.A rating of Suspended indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/orfirm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving thesubject company.Securities and/or companies that are labelled as Not rated or shown as No rating are not in regular research coverage of the Nomura entityidentified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/orcompanies.SECTORSA Bullish rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positiveabsolute recommendation.A Neutral rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutralabsolute recommendation.A Bearish rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negativeabsolute recommendation.Explanation of Nomuras equity research rating system in Japan published prior to 6 January 2009 (and ratings inEurope, Middle East and Africa, US and Latin America published prior to 27 October 2008)STOCKSA rating of 1 or Strong buy, indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next sixmonths.A rating of 2 or Buy, indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the nextsix months.A rating of 3 or Neutral, indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% overthe next six months.A rating of 4 or Reduce, indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% overthe next six months.A rating of 5 or Sell, indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months.Stocks labeled Not rated or shown as No rating are not in Nomuras regular research coverage. Nomura might not publish additionalresearch reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or otherinformation contained herein.SECTORSA Bullish stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months.A Neutral stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months.A Bearish stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months.Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector -Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe;Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: BloombergWorld Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.Explanation of Nomuras equity research rating system for Asian companies under coverage ex Japan published priorto 30 October 2008STOCKSStock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price,subject to limited management discretion. In most cases, the Fair Value will equal the analysts assessment of the current intrinsic fair value ofthe stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesntthink the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from theintrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and ourestimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within thishorizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downsideimplied by the recommendation.A Strong buy recommendation indicates that upside is more than 20%.A Buy recommendation indicates that upside is between 10% and 20%.A Neutral recommendation indicates that upside or downside is less than 10%.A Reduce recommendation indicates that downside is between 10% and 20%.A Sell recommendation indicates that downside is more than 20%.SECTORSA Bullish rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positiveabsolute recommendation.A Neutral rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutralabsolute recommendation.A Bearish rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negativeabsolute recommendation.Target PriceA Target Price, if discussed, reflect in part the analysts estimates for the companys earnings. The achievement of any target price may beimpeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if thecompanys earnings differ from estimates. 12
    • Nomura | AEJ Malaysia Property May 11, 2011DisclaimersThis publication contains material that has been prepared by the Nomura entity identified at the top or bottom of page 1 herein, if any, and/or, with the sole or jointcontributions of one or more Nomura entities whose employees and their respective affiliations are specified on page 1 herein or elsewhere identified in thepublication. Affiliates and subsidiaries of Nomura Holdings, Inc. (collectively, the Nomura Group), include: Nomura Securities Co., Ltd. (NSC) Tokyo, Japan;Nomura International plc (NIplc), United Kingdom; Nomura Securities International, Inc. (NSI), New York, NY; Nomura International (Hong Kong) Ltd. (‘NIHK’),Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. (‘NFIK’), Korea (Information on Nomura analysts registered with the Korea Financial InvestmentAssociation (KOFIA) can be found on the KOFIA Intranet at http://dis.kofia.or.kr ); Nomura Singapore Ltd. 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