Yi-Lai would soon become an alternative Batu Kawan property play. The potential injection of landbank and property projects by Aspen should transform Yi-Lai substantially. Earnings profile is likely to enter into a new growth trajectory with the Batu Kawan growth story, tie-up with IKEA, and lucrative property development margin being the key catalysts. We estimate a valuation range of MYR1.28-1.45 – a potential 52-73% upside.
Making a total change. Yi-Lai, which is largely off the radar of many investors, would see an exciting transformation ahead. It has signed a heads of agreement with Aspen Vision (Aspen) in February. A total of MYR100m in cash and MYR450m worth of new shares would be issued to Aspen with the injection of Aspen’s assets into the company. Currently, Aspen owns 245 acres of freehold land in Batu Kawan, as well as a total of 21.6 acres of land in Penang Island and Subang. It has also tied up with IKEA to set up the first IKEA store in the northern region. Key risk to our investment thesis: The deal falling through.An immediate Batu Kawan play. Unlike other players which have not launched any projects at Batu Kawan, Aspen is taking the lead, and already sold 451 units of shop offices last year, and just rolled out five blocks of residences early this year. The total GDV for this 245-acre Aspen Vision City,
Batu Kawan is a whopping MYR8bn, anchoring the next 10 years’ earnings.Lofty margin despite selling affordable housing. Although Aspen has not shown any earnings track record, we expect gross margin for the property projects to be around 30-35%, which is above the industry average of 20-25%. The lucrative margin can be attributed to the simple design of the properties, with packaged deal offers to buyers to upgrade the interior furnishing. Given the tie up with IKEA, Aspen is likely to bulk purchase furniture & fittings from IKEA for most of its residential projects, making its products more sellable.
Rapid P/E compression. Aspen achieved MYR900m sales in 2015. With unbilled sales of over MYR1bn, earnings should kick in immediately after the completion of the asset injection exercise. Based on our estimate, we believethe P/E multiple can be compressed to <5x 40="" 52-73="" a="" adjacent="" all="" an="" and="" announced="" approvals="" are="" aspen="" asset="" attractive="" bangkok="" based="" be="" believe="" blue="" br="" business="" commercial="" company="" cube="" currently="" details="" development="" discount="" estimation="" expansion="" exploring="" few="" follow="" for="" further="" future="" fy17.formula="" growth="" ikea="" in="" injections="" is="" joint="" like="" likely="" model.indicative="" months.="" more="" myr1.28-1.45.="" necessary="" new="" next="" not="" obtained="" of="" on="" once="" our="" over="" philippines.="" potential="" range="" re-rated="" rnav="" s="" should="" significantly="" stock="" stores.="" suggests="" the="" then="" this="" to="" underestimated.="" undertake="" upside="" valuation="" ventures.="" ventures="" viable="" we="" with="" would="">
From Yi-Lai to Aspen The asset injection exercise In February, Yi-Lai signed a heads of agreement with Aspen and would issue MYR450m worth of new shares and pay MYR100m to Aspen’s shareholders for the injection of Aspen’s assets into the company. Upon completion of the deal, Aspen shareholders wouldhold a 74% stake in Yi-Lai. Currently, Aspen has five projects that carry a total GDV of MYR10.05bn on 267-acre landbank. Out of which, 245 acres are located at Batu Kawan, the mainland connection of Penang’s second bridge to the island.
Yi-Lai is primarily in the tile business, and registered as the proprietor of the “Alpha Tiles” trademark. In May 2014, Singapore-based Hampton Capital emerged as a substantial shareholder after acquiring a 31.12% stake from the former major shareholder and managing director Mr Lim Oon Kok and his family. The company has a clean balance sheet with net cash as at FY15. We think Aspen would likely keep the tile business, given the potential synergies together with the new property development segment.
Aspen is currently run by Dato’ Seri Nazir Ariff, who is the co-founder and executive director of the company. Prior to establishing Aspen, he was the deputy chairman and executive director of Ivory Properties Group (IVORY MK, NR). Another instrumental key officer is Dato’ M. Murly, who is also the founder and CEO of Aspen. Dato’ Murly was previously the executive director and CEO of Ivory Properties. Currently, he is mainly responsible for the company’s overall business strategy and ventures, as well as day-today operations.
An immediate Batu Kawan play Recall, in Jan 2014, Aspen and IKEA were awarded 245 acres of freehold land in Batu Kawan for a total purchase consideration of MYR483m (about MYR45 psf). A new IKEA store as well as an integrated shopping mall, in which Aspen owns a 30% stake, wouldoccupy 75 acres of land, and the remaining 170 acres is planned for a mixed development, which IKEA has an effective interest of 20%. We like the location, which is strategically off the end of the Penang Second Bridge and near Batu Kawan Industral Park. This is highly accessible from Penang Island and the North-South Highway. While the IKEA store is already the key selling point for the project, other catalytic investments at Batu Kawan include the proposed Hull University, KDU University, Penang Design Village, Business Process Outsourcing (BPO) hub – a joint venture (JV) between state-run Penang Development Corp (PDC) and Temasek. We understand that IKEA, KDU, BPOand Penang Design Village have already started their earthworks / construction.
Total GDV for this Aspen Vision City is MYR8bn, over a development period of 10 years. The whole plan is taking shape piece by piece now. Aside from the main commercial components ie the IKEA store and integrated shopping mall (with indicative NLA of 1.2-1.8m sqf), in Jun 2015, Columbia Asia Hospital has also announced that it would invest MYR185m to set up a new hospital there. Upcoming developments are likely to include a new hotel chain and international school that would serve the new urban community.
There are not many land owners at Batu Kawan. Apart from PDC and Savills Malaysia, other listed players that have exposure to Batu Kawan include Eco World Development (ECW MK, NR), Paramount Corp (PAR MK, BUY, TP: MYR2.32) and Global Oriental (GOB MK, NR). However, many of these players (excluding PDC) have not launched any projects there. Aspen, on the other hand, is taking the lead to first capture the demand for properties in Batu Kawan. The company has already fully sold its first launched Vervea last year, which comprises 451 units of shop offices (GDV: MYR776m). It has also recently previewed Vertu Resort (GDV: MYR620m), which is the first residential phase in Aspen Vision City. It comprises five high-rise blocks, with 1,200 units of apartments, pricing at MYR350-380 psf. Given unit size of 1,030 – 1,290 sqf, absolute unit pricing appears fairly affordable at MYR380k – 490k. Given the overwhelming response for the commercial shops, we believe the residences ought to be similarly well received.
