We remain sanguine about Magna Prima Bhd’s (81 sen) earnings outlook for the next few years based on the company’s current roster of projects in hand.
Although the company’s latest earnings results for 3QFY11 were weaker than expected, due primarily to some provisions, it is still on track to record a strong turnaround for the full year and going forward. It has unbilled sales totalling RM387 million.
Magna Prima’s net profit for 3QFY11 came in at RM400,000. While this represents a reversal from the RM5.5 million net loss in 3QFY10, earnings were lower than the RM2.2 million reported in 1QFY11and RM4 million in 2Q. This was despite turnover improving to RM64.3 million in 3QFY11, compared with the total of RM54.2 million in 1HFY11.
The weaker earnings can be attributed primarily to some RM6 million in provisions made in the quarter. About half of the amount was for impairment on development costs for the D’Sierra Anggun project in Selayang.
Magna received a notice in June that the entire piece of land on which it had started earthworks had been gazetted for compulsory acquisition by the government. The final compensation offered was RM16.8 million, resulting in a RM3 million writeoff. Magna has filed an appeal on the compensation amount. The company also made about RM3 million provisions for legal costs in 3QFY11.
Turnover in 3QFY11 mainly consists of contributions from the One Sierra and Alam d’16 projects, which were launched in 2HFY10 and 1HFY11.
The current quarter should see maiden contributions from two new projects — a mixed commercial/residential development called the Boulevard Business Park in Jalan Kuching, Kuala Lumpur, and the gated and guarded residential development, Seri Jalil in Bukit Jalil. Both projects were launched in early 4QFY11 but were delayed in construction starts due to the excessive wet weather in recent weeks. However, we expect both projects will start to contribute in the current month.
The RM198 million One Sierra project is expected to complete by mid-2012 while the other three projects have a combined gross development value (GDV) of roughly RM1 billion and are expected to complete in stages between now and 2014.
Both the Seri Jalil and phase 1 of the Alam d’16 projects are fully sold. The Seri Jalil project, which consists of 107 units of 2½-storey superlink terraced and semi-detached houses, is expected to finish by 1H13.
Construction on Alam 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 for launch early next year and is expected to be completed by 2014.
The Boulevard Business Park 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 mainly of serviced apartments and is targeted for launch next year.
Magna is also dipping its toes into the overseas property market for the first time. Depending on performance, the company may seek more of such projects in the future.
The current project involves plans to develop a 25-storey apartment block in the heart of Melbourne, Australia. The project, called Dynasty Living, is already 62% sold in the local market. Magna intends to launch the remaining units to Malaysians by early 2012.
The project has an estimated GDV of A$210 million (RM675 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 is expected to commence very soon now that the acquisition has been completed.
These projects will underpin Magna’s earnings for the next three years, up till 2014.
Expect strong earnings turnaround
The strong turnaround will start this year, from a net loss of RM12.4 million in 2010 to our estimated net profit of about RM20.1 million. Earnings in 2012/13 will be even stronger, with all the projects in full swing. We estimate net profit of roughly RM56 million in each of the next 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’s book value will rise to about RM1.08 per share from the current 47 sen per share, a 34% upside from the current share price of 81 sen.
This is assuming a higher dividend payment of 1.5 sen per share in 2011 and 3.4 sen per share in each of the next two years, in line with the company’s earnings expansion. This translates into fairly decent net yields of 1.9% in 2011 and 4.1% for 2012/13.
However, should dividends remain at last year’s level, of one sen per share, Magna’s book value will rise to RM1.18 per share or 46% higher than the prevailing share price.
Note that the company’s share capital is now enlarged to 332.9 million shares with the conversion of all its outstanding warrants, which expired end-September this year.
Two more projects on the drawing board and looking to replenish landbank
Magna 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 2.8ha plot of land in Jalan Gasing, Petaling Jaya, which was acquired last year for RM48.5 million.
The other is expected to be a huge mixed development in the heart of Kuala Lumpur’s business district. Magna is in the process of acquiring a 1.06ha piece of land in Jalan Ampang where the Lai Meng Girls School is situated.
The plan includes the relocation of the school to Bukit Jalil, where a piece of land has been acquired for RM10.7 million. Construction of the new school is expected to start soon.
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.
Although the company’s latest earnings results for 3QFY11 were weaker than expected, due primarily to some provisions, it is still on track to record a strong turnaround for the full year and going forward. It has unbilled sales totalling RM387 million.
Magna Prima’s net profit for 3QFY11 came in at RM400,000. While this represents a reversal from the RM5.5 million net loss in 3QFY10, earnings were lower than the RM2.2 million reported in 1QFY11and RM4 million in 2Q. This was despite turnover improving to RM64.3 million in 3QFY11, compared with the total of RM54.2 million in 1HFY11.
The weaker earnings can be attributed primarily to some RM6 million in provisions made in the quarter. About half of the amount was for impairment on development costs for the D’Sierra Anggun project in Selayang.
Magna received a notice in June that the entire piece of land on which it had started earthworks had been gazetted for compulsory acquisition by the government. The final compensation offered was RM16.8 million, resulting in a RM3 million writeoff. Magna has filed an appeal on the compensation amount. The company also made about RM3 million provisions for legal costs in 3QFY11.
Turnover in 3QFY11 mainly consists of contributions from the One Sierra and Alam d’16 projects, which were launched in 2HFY10 and 1HFY11.
The current quarter should see maiden contributions from two new projects — a mixed commercial/residential development called the Boulevard Business Park in Jalan Kuching, Kuala Lumpur, and the gated and guarded residential development, Seri Jalil in Bukit Jalil. Both projects were launched in early 4QFY11 but were delayed in construction starts due to the excessive wet weather in recent weeks. However, we expect both projects will start to contribute in the current month.
The RM198 million One Sierra project is expected to complete by mid-2012 while the other three projects have a combined gross development value (GDV) of roughly RM1 billion and are expected to complete in stages between now and 2014.
Both the Seri Jalil and phase 1 of the Alam d’16 projects are fully sold. The Seri Jalil project, which consists of 107 units of 2½-storey superlink terraced and semi-detached houses, is expected to finish by 1H13.
Construction on Alam 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 for launch early next year and is expected to be completed by 2014.
The Boulevard Business Park 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 mainly of serviced apartments and is targeted for launch next year.
Magna is also dipping its toes into the overseas property market for the first time. Depending on performance, the company may seek more of such projects in the future.
The current project involves plans to develop a 25-storey apartment block in the heart of Melbourne, Australia. The project, called Dynasty Living, is already 62% sold in the local market. Magna intends to launch the remaining units to Malaysians by early 2012.
The project has an estimated GDV of A$210 million (RM675 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 is expected to commence very soon now that the acquisition has been completed.
These projects will underpin Magna’s earnings for the next three years, up till 2014.
Expect strong earnings turnaround
The strong turnaround will start this year, from a net loss of RM12.4 million in 2010 to our estimated net profit of about RM20.1 million. Earnings in 2012/13 will be even stronger, with all the projects in full swing. We estimate net profit of roughly RM56 million in each of the next 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’s book value will rise to about RM1.08 per share from the current 47 sen per share, a 34% upside from the current share price of 81 sen.
This is assuming a higher dividend payment of 1.5 sen per share in 2011 and 3.4 sen per share in each of the next two years, in line with the company’s earnings expansion. This translates into fairly decent net yields of 1.9% in 2011 and 4.1% for 2012/13.
However, should dividends remain at last year’s level, of one sen per share, Magna’s book value will rise to RM1.18 per share or 46% higher than the prevailing share price.
Note that the company’s share capital is now enlarged to 332.9 million shares with the conversion of all its outstanding warrants, which expired end-September this year.
Two more projects on the drawing board and looking to replenish landbank
Magna 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 2.8ha plot of land in Jalan Gasing, Petaling Jaya, which was acquired last year for RM48.5 million.
The other is expected to be a huge mixed development in the heart of Kuala Lumpur’s business district. Magna is in the process of acquiring a 1.06ha piece of land in Jalan Ampang where the Lai Meng Girls School is situated.
The plan includes the relocation of the school to Bukit Jalil, where a piece of land has been acquired for RM10.7 million. Construction of the new school is expected to start soon.
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.
