Corporate: Cover Story-- Will lacklustre Malton benefit from Lim’s big deals?

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Despite its listing status and portfolio of reasonably successful niche projects, Malton Bhd has been a relatively low-key company. It has attracted little media attention in recent years except for controversial reasons.
While Malton is trading at a cheap forward price-earnings ratio (PER) of 5.1 times for FY2011F, as estimated by a local research house, it is tracked by only two research houses due to its relatively small market capitalisation of RM174.18 million (as at Sept 22), limited visibility, small landbank and absence of iconic projects. As at Sept 2, Standard & Poor’s had a “buy” call on the stock with a target price of 53 sen.
Over the last five years, Malton’s share price has languished below RM1, with its five-year high of 73 sen recorded on July 23, 2007. At its last traded price of 50 sen last Friday, it was trading at a 60% discount to its net asset value of RM1.26 as at June 30, 2010.
Malton’s sluggish performance is in stark contrast to the excitement generated by its major shareholder Datuk Desmond Lim Siew Choon, who is known for bagging high-profile deals in his private capacity, such as Pavilion KL and the redevelopment of KL Plaza, now renamed Fahrenheit 88.
The listed construction and property development company’s lacklustre performance is perhaps exacerbated by fears that the government will clamp down on the property sector to prevent it from overheating.
Several measures, including the introduction of IFRIC 15 in two years’ time, a proposed cap on the loan-to-value ratio (LVR) for homebuyers and the potential reintroduction of a progressive Real Property Gains Tax (RPGT)  regime in Budget 2011, have served to put a damper on the sector, which is seen as a laggard in the region.
Adding to Malton’s woes is the lawsuit filed against its unit Pioneer Haven Sdn Bhd in April 2010 by the new board of the beleaguered Ho Hup Construction Company Bhd.
Pioneer Haven had entered into a joint development agreement (JDA) with Ho Hup’s 70%-owned Bukit Jalil Development Sdn Bhd (BJD) just hours before Ho Hup’s previous board was ousted in an EGM. Ho Hup’s new board is now trying to have the deal with Pioneer Haven declared null and void.
Under the JDA, BJD was to develop a 60-acre parcel of freehold land jointly with Pioneer Haven. Financially strapped BJD was to allow Pioneer Haven to develop its land in Bukit Jalil while being entitled to at least RM265 million, or a 17% share, of the project’s gross development value.
Industry observers point out that while it may be challenging for Pioneer Haven to go through with the deal, parties with links to Malton’s Lim are said to be looking at acquiring a controlling 15% stake in Ho Hup. If seen through, the acquisition will allow Malton to tap Ho Hup’s landbank.
Three years ago, all eyes were on Malton when rumours surfaced linking Lim to Abad Naluri Sdn Bhd, the company given the mandate to develop the RM25 billion Penang Global City Centre (PGCC) project.
However, Lim denied any ties with Kiara Ikhtisas Sdn Bhd, the company that bought property developer Equine Capital Bhd’s 25% stake in Abad Naluri for RM2 million cash. The project was shelved after Abad Naluri failed to deliver a new turf club in Batu Kawan in exchange for the Penang Turf Club (PTC) land in Batu Gantong.
While Malton has been posting reasonable earnings on the back of stable revenue, it is on the lookout for new landbank. Analysts expect Malton to exhaust most of its existing landbank in five to six years.
A recent company update by a local research house highlights media speculation that Malton is poised to participate in the development of the 162ha Royal Malaysian Air Force (RMAF) land in Sungai Besi, either directly or through Lim’s private vehicle.
The land has been bookmarked for the development of a multibillion-ringgit Islamic financial centre. At the present time, 1Malaysia Development Bhd (1MDB) has the mandate to develop the urban renewal project in partnership with the Qatar Investment Authority (QIA).
News has been circulating that a consortium led by 1MDB and Lembaga Tabung Angkatan Tentera (LTAT), in collaboration with either Lim or Malton, will develop the project. It has been said that 1MDB and LTAT will hold 30% equity interest each while Lim will control 40%.
“With a lighter balance sheet in five years [with the potential disposal of investment properties], Malton would be the ideal development vehicle. Of course, an equity-raising exercise will be required given the size of the investment,” says the local research house.
The brokerage firm also notes that Malton has been able to tap other landbank via joint ventures. Some of Malton’s short to medium-term JVs include a high-end landed residential development at Ukay Spring, Cantonment Road condominiums on Penang island and a mixed development in Seremban.
Malton is expected to launch projects with a gross development value of up to RM1.6 billion within the next 12 to 24 months, including serviced apartments in Amaya Maluri, Amaya Saujana and Sri Kembangan.
However, after all these projects, investors may wonder what’s next for the group. Will Malton eventually benefit from Lim’s expertise and connections or will he continue to thrive without the listed entity?

This article appeared in Corporate page of The Edge Malaysia, Issue 825, Sep 27-Oct 3, 2010