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Friday, March 22, 2013

'I-Berhad has upside potential' (BT)

RALLY NO FLUKE: Shares are still trading significantly below its target price, says SJ Securities
THERE is optimisim that the recent rally in I-Berhad's shares is no fluke and that the shares may have more upside potential.

According to Bloomberg, I-Berhad's shares have risen 2.5 times during the last one year.

The share prices were up 13 sen yesterday to end at RM1.84 with 271,400 units traded. On Wednesday, it rose three sen.

SJ Securities said despite the company's upward trend lately, I-Berhad's shares are still trading significantly below its target price.

The research firm has placed a target price of RM3.13 on the shares.

"We have initiated coverage on I-Berhad with a 'buy' call, as we see a disconnect between the share price's upside potential and its earnings growth," it said in a research note.

SJ Securities said it views I-Berhad as a long-term growth story.

However, due to its relatively small capitalisation and no track record, it remains outside of investors' radar.

"Nevertheless, I-Berhad has immense potential and with a small share base, it could easily overachieve if earnings from its property development segment come in as expected," it said.

The company's major RM5 billion i-City and other property developments are set to be a huge 10-year urban project, with a shopping mall, hotels and small offices, among others.

"Due to the size of i-City RM5 billion development plan, I-Berhad has a lot on its plate," SJ Securities said.

It said the company's focus on i-City is a plus point to ensure its plan of launching about RM500 million of gross development value (GDV) projects yearly.

"As i-City development is gaining traction, we expect I-Berhad's future earnings to rise in tandem due to higher recognition from the property segment and a growing leisure division which will create a strong steady income stream," SJ Securities added.

I-Berhad plans to develop small offices, residential towers and luxury condominiums in the Klang Valley from 2012 to 2016 with an estimated total GDV of more than RM1.5 billion.

The property segment had contributed 37 per cent to its sales in financial year 2012 (FY2012). It posted a net profit of RM16.8 million in FY2012 from RM1.3 million a year ago on a revenue of RM66.7 million from RM27.2 million before.

The research firm expects I-Berhad's profit and revenue to rise to RM71.2 million and RM270 million in FY2013 respectively, and to double to RM101.9 million and RM450 million in FY2014, respectively.

"Due to its high growth rate, the shares may trade at a higher price earnings ratio of 8, which is still a discount to current trailing price-to-earnings of 11 times on FY2013's earnings. This implies a possible price target of RM5 next year," it said.

The i-City, built on a 29ha freehold site, is strategically located next to the Federal Highway. It was planned by world-renowned urbanplanning firm, Jerde Partnership, which is famous for Roppongi Hills development in Tokyo and SP Setia's KL EcoCity project.

Thailand's Central Pattana plc may also develop and operate a mall with about one million square feet of retail space.

I-Berhad also plans to upgrade the 7km long Sungai Rasau, which runs along eastern and southern boundaries of i-City, and develop food and beverages and entertainment outlets along the river front to replicate Singapore's Clarke Quay.

SJ Securities said I-Berhad is operating on an asset light business model by developing properties without actually owning the land.

The strategy largely explains the company's zero borrowings and RM16 million cash in hand, it said.

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