Monday 24 September 2012

IGB Reit - Arbitrage Opportunity

If you have IGBREIT and plan to hold the shares not less than 6 months do not plan to sell before 10 October 2012 (see announcement dated 21 Sept 12), at current share prices of RM1.40 and RM9.25 for IGBREIT and KASSETS respectively, there is an arbitrage opportunity.


For every 1 KASSETS share, one will get 5.24 shares of IGBREIT and cash of about RM2.75/share.

After deducting transaction fee, one will still get more than 5% of arbitrage gain.

Buy KASSETS in multiple of 5,000 to avoid odd lots.

Menara Warisan Merdeka

7.6ha land located within the Stadium Merdeka and Stadium Negara heritage area.

Gross floor space of 3m sqf and 2.2m sqf of net floor space.

30% of the space is being reserved for its developer, Permodalan Nasional Bhd (PNB) and several government-linked companies under PNB's stable.

Will cost RM2.5b to RM3b

It will be followed by 2 subsequent phases comprising a shopping complex and condominiums.

The whole development to be undertaken over a 10-year period, will cost RM5b.

Will be over 600m tall compared with Petronas Twin Towers at 453m, Burj Khalifa at 829m and Taipei 101 at 509m.

Tuesday 18 September 2012

UAC - Too good to be true for those with zero/ low income tax bracket

Anyone with 0% or low income tax bracket will be able to benefit from the proposed RM1.33 less 25% dividend from UAC, provided the proposed SCR is approved by the shareholders in an EGM to be convened in October.

How much an investor with 0% income tax bracket will get from the SCR?

Say purchasing 1,000 shares of UAC at current price of RM4.20/share, investment RM 4200 + 1% (brokerage + other fees) = RM4242

Cash flow from the investment

RM 1000 (RM1.33 less 25% tax, within 4 months)
RM 3300 (Capital reduction and repayment, about 4 months' time)
RM 330 (Refund from IRB under Section 108)

Total cash inflow RM 4630

Investment RM4242

Assume total brokerage + other fees 2%

Return = 9.1%-2% = 7.1% in about 4 months.

Annualised return 21.3%

Thursday 13 September 2012

Sign of Delay in the Opening of KLIA2?

In the recent spat between Malaysia Airports and Tony Fernandes over the opening date of KLIA2, Malaysia Airport has affirmed that KLIA2 will be open in April 2013. (Source)

However, is the statement made by the CFO merely less than 2 month later "Once the airport is operational in May 2013, MAHB will have almost 10 low-cost carriers flying from there..." a sign of delay in the completion of the airport? (Source)

Monday 10 September 2012


Total GDV RM5bil

72-acre development in Shah Alam consists of theme park, mall, hotel, residence, office and concert venue.

Of i-City's total 13 million sq ft, 8 million for residential-type dwellings, 2 million for the mall and three hotels, and the rest for offices.

3 flyover interchanges will link i-City to the Federal Highway, making it only the second development to have exclusive access to the bustling expressway after Mid Valley.

The Shah Alam City Council has written to the Land Public Transport Commission requesting that one of the stations along the proposed Kelana Jaya-Klang line of the My Rapid Transit service i-City.

When everything is complete, recurring income will come from the investment properties namely the mall, hotels and carparks.

In 2011, I-Bhd entered into a 30:70 JV with Everbright International China to co-develop 30 acres in i-City. Phase one involves 14 acres with a GDV of RM1.5bil, will comprise a giant shopping mall and 2 million sq ft of mixed residential, Multimedia Super Corridor (MSC) offices and educational institute. The second phase has a GDV of RM2bil involving 16 acres.

The story of i-City stretches as far back as 1993, when Lim bought a parcel of land in Section 7 of the then sleepy Shah Alam at RM4 per sq ft.

The freehold development is the brainchild of Lim, who has throughout his life been a trailblazer on many fronts despite adverse circumstances.

With only 20% of the construction in place, large tracts of bare land still dominate the landscape of i-City, although if everything goes on schedule, this will not be the case for much longer.

I-Bhd will spend the next 10 years realising the masterplan designed by Jon A. Jerde, whose portfolio includes the ritzy Roppongi Hills neighbourhood in Japan and SP Setia Bhd's KL Eco City.

Lim and his team are working to create an “international business hub by day and lifestyle haven by night”, the likes of which has no comparison in Shah Alam, and which many thought preposterous to do in a place better known for its sedate suburbia and factories than as a thriving nightspot.

Because of this, i-City was a tough sell. Lim, for example, had to contend with an initially miniscule plot ratio of 1:3 and approved built up of five million sq ft, which would not allow the company to maximise its potential.

After much wrangling, Lim got the green light to raise i-City's plot ratio to 1:5, giving it a total gross floor area (GFA) of 13 million sq ft and RM5bil in gross development value (GDV).

i-City was the first and still the only private sector-led MSC status zone in the state.

It also signed a management and development agreement with the Selangor government to make i-City a “technopreneur campus”, which comes with a host of incentives such as a temporary occupation licence for some 30 acres of neighbouring land, 24-hour operation for approved outlets, lower bumiputra sales quota of 30%, and the expanded plot ratio.

“If you look at all the successful urban centres in the world, there is always a business as well as entertainment component. Look at Roppongi or Canary Wharf (in London). When you have both day and night activities, the place becomes vibrant,” Eu explains.

When completed, the RM5b development will include residential property, 18 office towers and a one million sq ft mall.

It has been reported that I-Bhd plans to begin construction on the SoHo and SoVo units at i-City as well as a 3 star hotel in the next 6 months.

City of Digital Lights
Opened in 2009.

On average, it receives 90,000 visitors a week or about five million visitors per annum.

When first opened and parking was free, traffic jam at the entrance to i-City stretched some 10km.

Subsequently, I-Bhd charged RM3 per entry into the car park and the jam had eased to about 5km
Now it costs RM10 per entry.

The traffic buildup is now mainly during weekends, public and school holidays.

I-Bhd will be announcing its JV with a shopping mall manager in two weeks which will help manage its CityMall.

A “regional mall”

Estimated GDV RM500mil

Scheduled to complete end of 2015

Will be built on 14 acres in i-City.

Gross floor area of about 1.7m sq ft

Lettable area of one million sq ft.

Everbright will be the contractor and builder of the mall.

They will fund the construction and act as a financier cum contractor.

Some food and beverage outlets fronting Sungai Rasau as the Selangor government plans to upgrade the river.

Once completed, there will be a 1km river frontage beside i-City.

I-Bhd and Thailand's Central Group are setting up a special purpose vehicle (SPV) to build and operate i-City Mall

The i-City Mall development will combine 2 plots of land measuring 18.8 acres and has a built-up of 4.3m sq ft, will also include non-mall components such as a hotel, residential units and offices

i-City's Thai partner will be responsible for the design and development as well as management of the mall while I-Bhd will be responsible for the development of non-mall portion, namely the offices, apartments, hotel and parking facilities, as well as provide the infrastructure to the boundary of the mall.

The SPV will acquire the "mall portion" of the land from I-Bhd and will own and develop the mall and its attached car park.

Water World@i-City
6 acre

Will premier to the public in November 2012

This 4ha water theme park is able to accommodate up to 5,000 visitors a day

A tornado ride, the first of its kind in South-East Asia, will be a major attraction for the water park.

Invested RM30mil in leisure and theme park attractions so far.

Investing RM25mil in the Water World in 2012. Plan to invest RM100mil in the theme park in 3 to 4 years

The RM25m WaterWorld@i-City targets a two-year capital payback

Leisure Business
Currently, Snowalk and the digital lights are the main attractions which draw people to i-City.

“Our track record so far is we have managed RM1 turnover for each RM1 of investment. We invested RM30mil this year in the theme park and expect RM30mil revenue. This is based on actual historical performance. We did not plan for it this way. For every RM1 of turnover we receive 30%-35% in terms of profit."

I-Bhd embarked on the leisure business several years ago to provide the company with a recurring income stream once the development of i-City is completed in about 10 years.

Since the launch of City of Digital Lights, revenue from the leisure segment has grown from RM2.8mil in 2010 to RM17mil last year.

As at June 30, I-Bhd's efforts at enhancing its tourist attractions at i-City are paying off as profits have more than tripled year-on-year to RM7.61mil from RM2.24mil previously.

As it realises its need for repeat visitors, Eu says, I-Bhd will add new attractions every year to draw in the numbers. Last December, it brought in seven theme park rides and so far this year it has launched the 10,000 sq ft children's gym.

“At the moment we are still about 90% night in terms of visitor arrivals. We hope that by next year when the Water World is open it will be two thirds night visit and one third day visit,” he says.

Moving on, three hotels from luxury four star to boutique hotels are in the pipeline as long-term investment.

At the moment there are 3 planned four-star, three-star and boutique hotels. The latter 2 we may manage ourselves although we haven't finalised this. However, for the high end one, we will probably get an international hotel operator

Launched in  May 2012

173 units of the West Wing of i-Residence has been fully sold.

RM500/sq ft

It unveiled in August a further 173 units of the East Wing in addition to 20 villas.

220 small office/versatile offices (Sovos) were sold out

Completion and handover is expected in 2014.

The quarter ended June 30 marked the first time I-Bhd recognised revenue from the residential portion of i-City in its books. Its turnover in the second quarter improved 63% to RM10.94mil from RM6.71mil in the same period last year, and net profit to RM2.97mil versus a loss of RM129,000, boosted by a three-fold increase in its leisure segment and a one-off gain of RM1.8mil from the divestment of its i-Home trademark.

For the first half of the year, revenue climbed 73.5% to RM19.59mil from RM11.29mil, while net profit stood at RM3.79mil compared to RM294,000 of losses a year earlier.

In the notes accompanying its financial results, the firm said it recorded a profit of RM7.6mil from its leisure operations during the six months to June, which was triple the RM2.2mil achieved in the previous corresponding period due to stronger revenue from its upgraded SnoWalk, more visitors to the LED Lightscapes and new theme park attractions installed in the final quarter of 2011.

Nonetheless, Eu explains that the contribution from its leisure division, which has so far been I-Bhd's main earnings engine, should balance out as the company progressively receives cash from the sales of its residences.

“We have only accounted for less than 5% of our unbilled sales in the second quarter,” he points out.

I-Bhd is targeting to roll out some RM500mil worth of launches with one million sq ft of GFA and hit RM500mil in sales per annum.

Eu calls i-City a “dual-track” project as the tourism and property development elements can operate independently of each other.

By the middle of the next decade, after i-City has come to fruition, it is envisaged to have 30,000 knowledge workers, 25,000 residents and 40 million to 50 million visitors from five million now.

And while the small office/home offices (Sohos) and Sovos make up a significant chunk of its residences at 5.2 million sq ft, or 40% of the total built up, Eu does not think there will be a crunch in demand, citing the growing number of technopreneurs who eschew traditional offices.

In the near term, I-Bhd aims to launch 950 units of its RM300mil GDV Sohos in November alongside its Water World@i-City that will feature the country's only tornado ride.

Also in the works are a luxury 43-storey condominium sited on 1.1 acres in Kuala Lumpur's Golden Triangle in Jalan Kia Peng, which is slated to be revealed in the first quarter of next year, and Clarke Quay @i-City, the working title for what will be its riverfront complex inspired by the Singaporean tourist haunt of the same name.

“The authorities here are learning from Singapore and have decided to do away with the cemented banks of Sungai Rasau, which snakes past i-City. The plan is to widen and deepen the river to give it a natural look,” Eu explains.

The river will be the focal point for its leisure district comprising its one million sq ft regional mall, hotels, an amphitheatre and an F&B hub.

He expects net profit to be double that of last year in the financial period ended Dec 31, 2012 (FY12) on the back of progressive recognition of unbilled sales from its apartments and better ticket sales from its rides and attractions with the looming year-end holidays.

In a May report, Kenanga Research estimates that I-Bhd could see solid earnings growth in FY12 and FY13 of over 100% to RM11.4mil and RM24.3mil respectively.

“For the past five years, the group has maintained its net cash position with a zero gearing balance sheet,” adds the research house, which has a target price of RM1.51 for the stock.

On dividends, Eu shares that there is potential for higher payouts in the future. It has been returning one sen to shareholders over the past two years for a yield of 1% to 3%.

“The challenge for us now,” Eu sums it up, “is to continue to increase the GDV of i-City. We have 10 years left under the current plan. Our job is not to complete it, but to enhance it further so we will have many more years to go.”

Tan Sri Lim Kim Hong
The youngest in a family of 10 children

Dropped out of school after standard six and worked in a furniture-making shop in his hometown of Muar, Johor, as an apprentice.

Lim later struck out on his own as a carpenter. At 21, he signed up as a mattress dealer with Dunlop and within a short time, he was the biggest dealer in the country. Soon after, Lim started Dreamland, Malaysia's first spring mattress brand, earning him the nickname “mattress king”.

Dreamland was subsequently listed in 1987 and Lim sold the business in 1993 for RM350mil. He invested the money in several regional ventures as well as in the land on which i-City sits.

I-Bhd, which is 61.2%-owned by Lim, used to be a white goods maker known as Sanyo Industries Malaysia Bhd before he acquired and renamed it in 1999.

But his technology-based township did not take off until 2005, hampered by the Asian financial crisis.

Thursday 6 September 2012

Calculating WCT theoretical ex-all price

WCT has proposed bonus issues of new ordinary shares on the basis of 3 for 20 and free warrants on the basis of 1 for 5. See Bursa announcement

The proposed bonus issue of shares and the proposed bonus issue of warrants will be implemented concurrently. As such, the bonus shares to be issued pursuant to the proposed bonus issue of shares will not be entitled for the warrants.

The theoretical ex-all price will be:

[Closing price immediate before ex-date + 0.2 (warrant exercise price)]/ (1 + 0.2 + 0.15)