Highlight: A re-rating on the horizon for Mulpha International?

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A revival in the fortunes of Mulpha Land Bhd (MLand) and Mudajaya Group Bhd is pointing to a re-rating of low-profile Mulpha International Bhd (Mulpha), which holds equity interest in the two companies.

Furthermore, Mulpha's jewel in the crown - its landbank in Iskandar Malaysia, Johor - is a property development hot spot and is estimated to be worth billions of ringgit.

Meanwhile, the shares of its 70%-owned subsidiary, MLand, have attracted keen interest recently. The property stock has doubled to aboutRM1.20 per share from 60 sen in July.A restructuring exercise that will see Mulpha inject a two-acre prime tract into MLand for RM47.07 million has helped fuel buying interest in the latter's shares. The project, in Petaling Jaya's Section 13, has an estimated gross development value (GDV) of RM200 million to RM250 million - much bigger than MLand's current market capitalisation of RM111.4 million.
The land, for the development of high-rise serviced residences, previously housed Mulpha's headquarters, which has been moved to Menara Mudajaya in Mutiara Damansara. MLand expects to start work in 1H2015 and complete it in three years.

Under the restructuring plan, Mulpha will concentrate on the southern region of Peninsular Malaysia through its Leisure Farm development in Iskandar Malaysia. As part of the deal, MLand will sell two parcels in Johor to Mulpha's wholly-owned unit, Leisure Farm Equestrian Sdn Bhd, for RM19.67 million.

The first parcel has been earmarked for the development of apartments, but plans for the second parcel have not been revealed. All other developments in the central and northern regions of the country will be parked under MLand, giving its development portfolio a big boost.

Mulpha’s jewel in the crown — its landbank in Iskandar Malaysia, Johor — is a property development hot spot and is estimated to be worth billions of ringgit

In early June, MLand announced the purchase of two tracts adjacent to the Tropicana Golf & Country Club in Bandar Damansara. The 6.41 acres purchased from Tropicana Golf & Country Resort Bhd for RM116.1 million will be developed into a mixed-use commercial development with an estimated GDV of RM700 million.

Another development to MLand's name is the 1.54-acre Enclave Bangsar that has a GDV of 94 million. A conservative estimate of Mulpha's share of these projects, in terms of GDV, could come to about RM696 million, based on its 70% stake in MLand.

MLand's share price has been surging, but the same cannot be said for its parent, Mulpha, which closed at 46.5 sen on Thursday (Aug. 15), giving it a market capitalisation of RM966 million.

Apart from its stake in MLand, which is appreciating in value, Mulpha's landbank could be a wildcard too. It has a rather large landbank in Iskandar Malaysia and Gold Coast, Australia. Its key project in Iskandar is Leisure Farm while in Gold Coast, it is Sanctuary Cove.

Sanctuary Cove is a 1,171-acre integrated residential development, while the 1,765-acre Leisure Farm is an exclusive, resort-like housing development with a GDV of RM700 million  (see City & Country's cover story).

Analysts say Mulpha is poised to be a beneficiary of rising land values in Iskandar Malaysia. In an April

research report, HwangDBS Vickers Research says transaction prices there have ranged between RM12.20 and RM22 psf since August 2011.

"In comparison, Mulpha's landbank of 1,077 acres at its Leisure Farm development carried a net book value of RM366 million as at Dec 31, 2011, or just RM7.80 psf," HwangDBS Vickers analyst Goh Yin Foo says in the note.

"Assuming a conservative market price of RM15 psf, this would boost its end-December 2011 book value by an incremental RM338 million, or 14.3 sen per share, to RM3.3 billion - an upward revision of 11%."The Mudajaya boost

Mulpha could be a cheaper entry into Mudajaya, which is tipped to be a big winner of RM20 billion worth of contracts for the construction of four new power plants in the next few years. Mulpha, through Mulpha Infrastructure Holdings Sdn Bhd, holds a 22.21% stake in Mudajaya.

Mudajaya has an outstanding order book of RM2.2 billion, with projected new job wins of about RM500 million to RM600 million, according to Public Invest Research.

"Current jobs in hand that would underpin Mudajaya's earnings for the near term include the Mass Rapid Transit Package V3 at RM780 million, Tanjung Bin Power Plant extension at RM650 million, Manjung Power Plant extension at RM230 million, engineering and procurement for a power plant in India at RM450 million, and other building jobs worth about RM200 million," Public Invest Research analyst Tan Siang Hing says in a note.

Public Invest Research forecasts Mudajaya's net profit to come in at RM168.3 million, RM186.7 million and RM187 million for FY2013, FY2014 and FY2015, ending Dec 31, respectively.With Mulpha's 22.21% stake in Mudajaya, its share of profit would translate into about RM37 million for FY2013, RM41 million for FY2014 and RM41 million for FY2015. The construction outfit also has a tender book of about RM5 billion, 60% of which is for power plant civil works.

"Mudajaya is bidding for four power plant jobs locally and has a strong chance of securing a civil works job, likely in 4Q2013. This is for another 1,000mw extension of the Manjung coal-fired power plant in Perak," says CIMB Research analyst Sharizan Rosely in an Aug 2 note.

With a total development value of RM4.5 billion, this means about RM1 billion to RM1.3 billion worth of potential civil works for Mudajaya, he notes. Mudajaya is also tendering for civil works at the Prai CCGT 1,071mw plant and the 1,300mw co-generation power plant in Pengerang.

Mudajaya's net assets stood at RM2.13 per share as at March 31. At its prevailing share price of about RM2.75, it has a price-earnings ratio of 7.31 times, according to Bloomberg. Its current market capitalisation stands at RM1.49 billion.

Mulpha's stake in Mudajaya is worth about RM330 million, almost a third of its market capitalisation. However, with a finger in different pies, valuations for Mulpha may be capped by an investment holding discount.

It does not help that Mulpha has a no dividend policy as it believes in a share buyback option. No dividends were given out for its latest financial year.

Be that as it may, Mulpha will need help to return to the black after posting a net loss of RM475 million for FY2012 compared with a net profit of RM178.9 million in the previous year. The huge loss was attributed to the losses made by its 26%-owned associate FKP Property Group, which is listed on the Australian stock exchange. Mulpha's share of FKP's losses came to RM327.14 million.

FKP's current business comprises retirement and property development, but Mulpha plans to recast the company as a pure retirement play.

This story first appeared in The Edge weekly edition of August 12 - August 18, 2013.