SINGAPORE (Oct 20): RHB is initiating coverage on Aspen (Group) Holdings, the Penang-based property developer, at “buy” with a target price of 31 cents based on a 45% discount to a RNAV estimation of RM1.5 billion ($480 million).
Compared to the typical discount of 20-30%, RHB says its higher discount reflects the group’s smaller size, shorter track record, and concentration risks.
In a Friday report, analyst Vijay Natarajan highlights the group as an early mover in the emerging Batu Kawan market with its flagship Aspen Vision City (AVC) project, which is jointly developed with Ikano and has an estimated gross development value (GDV) of RM11 billion.
Ikano is also opening West Malaysia’s first Ikea store in AVC, which the analyst says is a potential re-rating catalyst for property prices and demand.
In Natarajan's view, although Aspen is targeted at middle-income buyers, its projects come with quality infrastructure and a cost-effective, fully-furnished unit option which he expects to be a key differentiating factor.
He also likes Aspen for its unique business model, which includes projects that feature “smart services”.
“Ikano currently operates five stores in Singapore, Thailand and Malaysia, with three more under construction. It also plans to double its business in the coming years. Aspen could grow along by replicating its strategy of building neighbouring projects in other parts of Malaysia and overseas via potential JVs with local developers,” says Natarajan.
“The [West Malaysia Ikea] store is expected to be open by 1Q19. Based on past observations, the opening of Ikea outlets in Malaysia has boosted population density, property demand and real estate values in the surrounding areas. We expect a similar effect on Batu Kawan property prices once the store opens,” he adds.
Natarajan expects Aspen to turn around in 2017 with a net profit of RM70 million compared to its net loss in the previous year.
As the group’s policy is to distribute at least 20% of the group’s PATMI as dividends from 2018 onwards, he believes its earnings can further grow by 74% and 45% in 2018 and 2019, respectively, as earnings are progressively recognised upon project completion.
Aspen currently has four ongoing launched projects in Penang and three more in its pipeline.
As at 2.42pm, shares in Aspen are trading flat at 22 cents or 5.3 times FY17 book.
