Niche property developer Magna Prima Bhd (77 sen) expects earnings growth to pick up strongly in the second half of this year and going into 2012 to 2014 on the back of its project lineup.

The company reported sales totalling RM54.2 million in 1H11, up about 10.9% from the previous corresponding period. Net profit, on the other hand, saw an outsized increase to RM6.2 million from just RM1 million over the same period. This was due to better margins from the One Sierra @ Selayang project as construction progresses. The project, launched in 3Q10, is fully sold and is on target for completion by mid-2012. Earnings in 1H11 also saw tail-end contributions from the U1 Apartment Suites in Shah Alam.
Although net profit in 1H11 was well short of our estimate of roughly RM28 million for the full-year, on an annualised basis, we expect a sharp pickup in 2H11 to make up the difference. This is based on forecast contributions from three new projects, on which construction has recently started. The company had unbilled sales totalling some RM363 million as at early-October 2011.

New projects underpin earnings for 2012 to 2014
The three new projects include a mixed commercial-residential development called the Boulevard Business Park in Jalan Kuching as well as two gated and guarded residential developments, Seri Jalil in Bukit Jalil and d’16 in Shah Alam. These projects have a combined gross development value (GDV) of roughly RM1 billion.
Both the Seri Jalil and phase 1 of the d’16 projects have been fully sold. Seri Jalil, which consists of 107 units of 2½-storey superlink terrace and semi-detached houses, is expected to complete by 1H13.

Construction on d’16 started in July and the first phase of 177 units of double-storey link homes is slated to complete by 1H13. The second phase, consisting of medium-cost apartments, is targeted to launch early next year and to be completed within three years.

The Boulevard Business Park at Jalan Kuching will also be developed in two phases. The first phase, consisting of 4-storey shop offices, is about 80% sold and construction is expected to start soon. The next phase will consist of mainly serviced apartments and is targeted to launch next year.

Magna Prima is also in the process of finalising the acquisition of a piece of land in the heart of Melbourne, Australia, with plans for the development of a 25-storey apartment block. The project, called Dynasty Living, is already 62% sold in the local market. The company intends to launch the remaining units to Malaysians, targeted by early 2012.
The project has an estimated GDV of A$210 million (RM651 million). Profit will be recognised upon completion in accordance with the IFRIC 15 (International Financial Reporting Interpretation Committee). Hence, we expect to see a sharp bump in net profit in 2014, the target project completion date. Construction will commence once the acquisition is finalised, expected before end-2011.
This is Magna Prima’s first venture overseas. Depending on performance, the company may seek more such projects in the future.

Strong earnings turnaround and potential upside gains
The above-mentioned projects will underpin Magna Prima’s earnings for the next three years, up till 2014.
The strong turnaround in earnings will start this year, from a net loss of RM12.4 million in 2010 to net profit of about RM28 million. In addition, we believe the company will make a small gain from appreciation in the value of a piece of land in Selayang, where the D’Sierra Anggun project was originally planned. To recap, Magna Prima received notice in June 2011 that the entire piece of land has been gazetted for compulsory acquisition. A final decision on the valuation and compensation is expected before year-end.
Earnings in 2012/13 will be even stronger, with the new projects in full swing. We estimate a net profit of roughly RM50 million to RM55 million in each of the two years. In 2014, net profit will be further boosted by lump sum contributions from Dynasty Living, upon the project’s completion.

By end-2014, we estimate Magna Prima’s book value will rise to about RM1.06 per share — a 38% upside from the current share price of 77 sen. Note that our forecast book value has taken into account higher annual dividend payments going forward. If dividends remain at last year’s level of one sen per share, book value will rise to RM1.16 per share or 50% higher than the prevailing share price.

More projects on the drawing board beyond 2014
Magna Prima is actively looking to replenish its landbank, for projects beyond 2014. It already has two projects on the drawing board.
The first will be located on the 6.95-acre (2.78ha) plot of land in Jalan Gasing, Petaling Jaya, the company acquired last year for RM48.5 million. The other is expected to be a huge mixed development in the heart of the Kuala Lumpur business district.

The company is in the process of acquiring the 2.62-acre piece of land in Jalan Ampang, where the Lai Meng Girls School is currently situated. The plan includes the relocation of the school to Bukit Jalil, where a piece of land has already been acquired for RM10.7 million. Construction of the new school is expected to start soon.

Decent dividend yields in line with higher earnings
In line with the higher earnings, Magna Prima will likely raise dividends this year. We estimate dividends totalling 1.5 sen per share, up from one sen per share in 2010, based on the enlarged share capital of 332.2 million shares.

Assuming a similar payout ratio, dividends are forecast to rise further to roughly three sen per share in 2012. That would earn shareholders fairly decent net yields of 1.9% for 2011 and 3.8% for 2012.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.