KSL (UnderValued)

Its property sales have been brisk as evidenced by its staggering revenue growth from RM186 million in FY2009 to RM689 million in FY2013.

It is one of the proxy for the property market in Johor, particularly in Johor, Iskandar Malaysia and the Klang Valley.

KSL’s assets boasting a book value of rm3.86 per share. In fact its assets could be worth a lot more than their book value. It has growing recurring income that will improve its earnings profile.

KSL’s 2100 acres are likely to be worth substantially more than their book value due to escalating land prices in both Johor and Klang Valley. Many of the company’s parcels have not been revalued to reflect current (June 2014) market prices.

For example, its 148.66ha in Klang are carried at rm178 million or rm11 psf in its books. The land was valued in 2007. In the meantime, nearby tracts are worth rm20 psf more than current prices (June 2014) which means that a revaluation of the Klang land would add hundreds of millions to KSL’s asset value.

KSL’s advantage lies in the quality of its projects. Its shopping mall in Johor has been quite successful. KSL City is the company jewel in the crown, earnings steady recurring income of at least rm100 million a year.

With more than a third of its pre tax profit coming from a recurring income source, fund managers believe the company will be cushioned from the adverse effects of a property downcycle to a large extent.

Nonetheless, property development remaining KSL’s main contribution with property sales of rm550 million in FY2013 – the bulk of total group revenue of rm669 million.

The company is better known for its new housing estates in Johor, namely Bestari Indah and Taman Nusa Bestari, which were both well received.

KSL is undertaking at least seven major property projects in Johor and the Klang Valley.

A major development is a 448 acre township in Klang called Bandar Bestari.

Based on rm2.16, it has a historical PER of 4.5 times. KSL has a realized net asset value of rm3.86 per share. To use the benchmark earnings multiple for the property sector of 7.9 times, KSL’s shares should theoretically be worth rm3.53 based on its EPS of 44.6 sen in FY2013.

KSL is controlled by the Ku family, which holds a 32.74% stake,