Sunday, April 26, 2015

A look at different developers GDV in Malaysia (as at April 2015)

One of the various measurement for property developers especially for those established ones in Malaysia can be the total remaining Gross Development Value (GDV) that each of them have. Of course in establishing that, one should also not discount the factor of location, balance sheet strength, business margin and their individual business strength.

While I am not really into buying property, I have made substantial visits to launches and new development over the last 2 years. In Malaysia, I would say several developers are in the upper league and these are large scale developers usually one which have township development. I would say those are:

- SP Setia;
- UEM Sunrise;
- Sime Darby;
- IJM Land;
- EcoWorld - whom have made a name in less than 2 years;
- Tropicana - through an exercise it has become a prominent brand with sizeable landbank;
- IOI Properties;
- Mah Sing;
- UOA Development - a company which focus on high rise and city development.

Few more are in the smaller development companies league and they probably have almost the same pricing power. These are Gamuda (due to lack of available GDV), TTDI, Paramount, I&P, OSK Properties, Malton, DRB-Hicom, Hong Leong Properties and several others.

In the past one year, one can notice that the prices of properties have sort of stagnated and total transacted properties have probably reduced. This is a positive sign and in the past few years from 2009 to 2012, I have wondered where does the rise in property prices stop at. If it is not in check, it may experience the past experiences of Japan (1990s) and US (sub-prime crisis).

In any case, I still think there are lots of opportunities for well-established (or regarded) developers as some of them have either the ability to sell at above average prices - such as EcoWorld and SP Setia - hence they have no problem in buying land at current high prices. Just look at the purchase by Eco on the Batu Kawan land. Understood that they were no other bidders. Some others have significant landbank which were owned at very low costs - UEM Sunrise, Sime Darby, IJM Land.

In terms of location, I would think that Klang Valley has the most potential and sustainability as they are just too many new young families that are to be brought up in KL and Selangor. The government has projected that Klang Valley will be homes to some 10 million people by 2020 - up from 7 million now. That represents 2.5 million households (4 people per household) at the very least and that also means the need for about the same number of homes by 2020. If one is to judge how many households are there in one township development - Kwasa Damansara which covers 2,330 acres of land is building homes for 28,000 households and IJM Land which is building Rimbayu on 1878 acres of land is building homes for 10,000 households. How many new homes and how many more townships of that size would there be by 2020 in Klang Valley?

Next in my preference is Penang, then only Johor in which case at the moment is facing oversupply situation, largely due the presence of developers from China. We just are not able to figure the scale the Chinese builders can do, I guess. (Read this where Country Garden Danga Bay just launched a RM18 billion GDV in one launch.)

So how do we value a property development company? I am not in favour of PE as for example in the case of Sunrise in the past, they were pretty much a very strong developer in just one area - Mont Kiara. But its brand and ability attracted UEM to purchase them. Whether it created value for UEM, I do not think so. Property developers need their most important raw material which is land.

Price to Net Asset is also not as preferred due to some land can be cheaper when purchased while its GDV approved may be higher in respect of GDV per square foot.

In any case, one of the stronger ways to look at the value of these guys is the GDV (shorter term i.e. 3 to 5 years) against their market valuation as well as their balance sheet strength. I have hence picked up several companies - those which are purely a listed property counter.

The above are basically those that have market capitalisation of RM1 billion and above (I did not include Sime Darby as it is just too complex and UOA Development.) As for comparison, not all of them are apple to apple comparison (example IOI has significant Investment Properties portfolio). IJM on other hand is a much bigger group which includes construction and plantation.

If one is to look at the market cap to GDV, I am attracted to Tropicana as not only it has a significant development over the next few years with strong GDV but its market value to those is substantially lower to as compared to Mah Sing, SP Setia or even IJM Land prior to it being absorbed into IJM two months ago. (Prior to the delisting IJMLand was valued at around RM5.4 billion.) Additionally, while it had problems with regards to its sizable debt, its sale of several businesses i.e. the Tropicana Mall(and office), Austin Powder, land in Kota Kemuning to EcoWorld and a piece to a Chinese Developer would have reduced its net debt to below RM1 billion.

Below are the presentation made by several developers in terms of acreage and GDV.

IOI Properties GDV. It has a significant landbank in Johor just like several others.

EcoWorld's GDV without including the Batu Kawan purchase

MahSing's GDV. Notice its significant landbank in Greater KL as compared to the rest

SP Setia.  Notice the very significant GDV in Battersea.

Tropicana. Still significant landbank and GDV in Johor, but as per above it is focusing in Central region which will keep it busy for many years

If one is to notice above, Johor seems to have more total GDV than Klang Valley and Penang combined. Is Johor so much more attractive? We have yet to include UEM and Country Garden which seems to have few hundred mbillion GDV in partnership with the Johor Sultan.


AdCool said...

Lately your decision to purchase YFG and property counters are different from your usual portfolio.

I recalled you used to comment that you are not into property counters due to their valuation are based on land bank and land bank is something that is decreasing from time to time. Hence, there is not much growth prospect in the mid term.

Are you aiming for short term holding with property counter now especially Tropicana?

felicity said...

Hi AdCool

Yes, I am still not fully comfortable with property counters as I have not been able to figure out what happens after the land is used up. You have been keeping track very closely and understand how I think. :)

However, as I have been looking through some of the companies, I have noticed or shall I say some of the companies that I have studied, they seem to be able to replicate their successes on new areas. One very good example is EcoWorld - ironically, people are speculating on the successes that Liew have brought before which is to me changing my thinking quite a fair bit. They are willing to pay a premium for EcoWorld's launches even before they see the product.

There are developers that are just developers and building houses, and there are developers that are creating a difference in terms of people's perception.

For Tropicana, I am definitely not buying for short term as I have certain numbers in my mind what those shares are worth. In some respect, there is this margin of safety and if their brand keeps on improving, I believe this can also be a longer term hold.

I also have to admit I was wrong in thinking of their earlier exercise of injecting assets into the company - as I am seeing that they are leveraging on their brand - that's why rebranding from Dijaya to tropicana. I am also seeing that they are focusing on one thing - being a strong developer, which is why you see sale of Tropicana City Mall. The group is not that good at managing malls - then leave it to CapitaMall. You are basically seeing things are changing from external - with regards to Tropicana, as an observer.

Mei said...

Can I know how you obtain the information pertaining to the GDV and remaining acres of land to develop and market capitalisation details?