Malton Berhad - A Small Cap Developer With A Perfect Mix (OSK)

Malton Berhad - A Small Cap Developer With A Perfect Mix

We value Malton at MYR1.80 at 50% discount to RNAV. The stock is deeply undervalued at 0.5x P/B. A few big projects have been sorted out, such as the Bukit Jalil and Pusat Bandar Damansara developments. Three big projects in the pipeline worth MYR7.9bn are all at prime locations, namely Bukit Jalil, Batu Kawan and Pengerang. They make up 40% of RNAV. Malton could also potentially play a bigger role in PBD.

♦  The making of “Pavilion 2” at Bukit Jalil worth MYR3.5bn. Malton will put up a mall as sizeable as Pavilion Mall in KL at Bukit Jalil. Other commercial and residential components will be easily sold given the strategic location, 5.3m population catchment, and buyers’ confidence as reflected by the success of Pavilion and Banyan Tree project in KL.

♦  300 acres with MYR3.88bn GDV at Batu Kawan right off the PSB. Malton is also a Penang mainland play. The launch of Phase 1, comprising shop offices and superlink-homes worth MYR440m, is targeted in mid-2014, just timely after the opening of the Penang Second Bridge (PSB) when the growth visibility is substantiated.

♦  200 acres at Pengerang Johor. Malton is well-positioned at Pengerang, which is the next mega oil & gas hub in Malaysia. Its project has a GDV of MYR480m, located near the fisherman village and Chinese settlement area. We believe the market may not be aware of this land in Malton’s portfolio. The stock should see a catch-up in valuations, to be in line with the steep appreciation of many Iskandar plays over the last two months.

♦  Involvement in Pusat Bandar Damansara (PBD) a wild card. Datuk Desmond Lim now effectively holds the PBD land after the settlement with Johor Corp recently. Given that he is also the 38% major shareholder of Malton, we do not rule out the possibility that Malton could play a bigger role in the project. The commercial redevelopment could worth MYR2-3bn given that two MRT stations will be located in the vicinity and prime land is scarce at the affluent Bukit Damansara area. 

♦  Fair value at MYR1.80. We value Malton at MYR1.80, based on 50% discount to RNAV. At current share price, the stock is trading at a massive 80% discount to RNAV. The undervaluations make Malton an attractive takeover target given its strategic landbank exposure.