Aspen (Group) Holdings Ltd - CIMB Research 2017-09-29: A Gem In The North

Aspen (Group) Holdings Ltd - CIMB Research 2017-09-29: A Gem In The North ASPEN (GROUP) HOLDINGS LIMITED 1F3.SI

Aspen (Group) Holdings Ltd - A Gem In The North

  • Aspen is a property developer in Penang with a niche in affordable homes. Its unique value-added residential development model provides good margins, in our view.
  • We believe that the strategic tie-up with Ikano benefits Aspen Vision City. RM1.26bn of unbilled sales as at end-Dec 2016 would translate into strong earnings growth and high ROE, in our view.
  • We initiate coverage with an Add call and Target Price of S$0.29, based on a 45% discount to end-FY17F RNAV.


  • Aspen (Group) Holdings Pte Ltd is a property development group based in Malaysia. Aspen’s key value proposition is its focus on the large mass residential market segment through projects under the Penang state government's Affordable Housing Scheme that it packages with value-added upgrade options. Not only is this attractive to the buyers, but is also uplifting for operating margins. Furthermore, Aspen develops integrated projects and has a strategic relationship with Ikano Pte Ltd (Unlisted) as the joint owner of the Bandar Cassia Shopping Centre and master developer of Aspen Vision City (AV City) at Bandar Cassia, Batu Kawan in Penang.
  • Aspen has launched three projects in Penang, with a total gross site area of 190,835 sq m, which we estimate to have a gross development value (GDV) of RM2.17bn. The Tri Pinnacle, Vervea, Vertu Resort and Beacon Executive Suites have been launched and largely presold. In addition, Aspen has another development – HH Galleria (located in Penang) – that could be scheduled for launch soon. We also anticipate that development activities at AV City will pick up pace in the coming year with new offerings at Viluxe Villas and Vittoria Financial Centre.
  • The group is in the process of acquiring a piece of land with gross area of 75,636 sq m in Kajang, Selangor. As the transaction is still pending, we have not imputed any of this project’s value into our P&L, balance sheet or RNAV computations.
  • Aspen (Group) Holdings Pte Ltd was incorporated on 22 Dec 2016 as a private company. Post listing on 28 Jul 2017 on the Catalist Board of the Singapore Stock Exchange, its name was changed to Aspen Group Holdings Ltd (Aspen).
  • Aspen was founded by Chief Executive Officer and Executive Director Dato’ Murly Manokharan and Executive Director Dato’ Seri Nazir Ariff in early 2013 with a vision of providing affordable and mixed-development properties at quality locations with good infrastructure and amenities, targeting middle-income mass market purchasers, largely in Penang. In addition, the founders saw the opportunity for a mixed-use development project in Batu Kawan, Penang, identified by the state of Penang as its third satellite city.
  • Shareholders of Aspen are AVG (69.57%) and SBK (26.85%).


Pure play on growth of the North 

  • Aspen offers a pure play on the Penang property market, both on the island as well as the mainland. 
  • To assess Aspen’s gross site area and GDV exposure to Penang Island and the mainland, we have included the development rights of HH Galleria and assumed that the AV City land has been fully paid for. On this basis, we estimate c.22% of the attributable 888,154 sq m of total gross site area (including the development rights for HH Galleria) is located on Penang Island, with the balance on the mainland, solely at Batu Kawan. 
  • Based on projected GDV, c.12% of this exposure is on the island and the remaining on the mainland.

Niche in Malaysia’s fourth-largest property market 

  • Penang is the fourth-largest property market in Malaysia by transaction value as at 3Q16, according to the National Property Information Centre (NAPIC). The Penang property market has been growing rapidly since 2010, in tandem with the broader property market, fuelled by a low interest rate environment and ample liquidity. In 2010-2016 alone, average property prices in Penang appreciated c.72%, second only to KL property price growth. 
  • According to the Department of Statistics, total population in Penang increased c.7.4% between 2011 and 2016, from about 1.6m to 1.72m. In particular, the number of Penangites aged 20-34, which we believe is generally the age group of first-time homebuyers, increased 12% from approximately 445,100 in 2011 to 499,900 in 2016.
  • Following a multi-year property price appreciation trend, the Penang government implemented the Penang Affordable Housing Scheme, in an effort to provide quality housing at affordable prices to Penangites, through government as well as private-public partnership projects. Through this scheme, the Penang state government aims to provide a range of affordable homes in various locations across Penang. These products are priced at RM42,000-72,500 per unit for the low or low medium-cost (LMC) housing, and at RM150,000-400,000 for an affordable home unit.

Niche in affordable home segment 

  • According to media reports, Aspen’s Tri Pinnacle is Penang’s first privately-funded affordable housing initiative. 
  • Aspen’s strategy of providing quality properties at affordable prices hits the right note in this market segment, resulting in strong sales response since launch. In addition, its unique model of providing value-added options to end-buyers also ensures better-than-average margins.
Tri Pinnacle – value-added options boost margins 
  • Tri Pinnacle is the group’s first development, located at Mount Erskine, Tanjong Tokong, Penang. The project is located about 6km from Kompleks Tun Abdul Razak and about 19km from the Penang International Airport. It is also in close proximity to amenities such as Prima Tanjung Business Centre, Fettes Park Market, the Island Plaza shopping complex, Tesco hypermart and the Desiran Vantage Business Centre.
  • The project comprises 1,249 units of which 458 units are low-medium cost (LMC) homes (built-up area of 650 sq ft) and the remaining 791 units are affordable homes (built-up area from 800 sq ft), four shop lots and 1,381 carpark bays, spread over 125,000 sq m of estimated GFA. The project was launched for sale in Jun 2015 and was 81.32% sold as at Mar 2017. Construction is slated to be completed in 3Q18. We project this development to have an estimated total GDV of RM524.7m when completed. This translates into an average price of RM387 psf of GFA, a price that is well within the current market transactions in the vicinity.
  • In addition, there are upgrade options that allow buyers to decide on improved facilities and amenities such as better floor finishes and additional sanitary and plumbing fittings. Based on property websites (such as penangpropertytalk), we note that an upgraded unit can cost c.RM399,000 compared to a standard unit priced at RM299,000. We understand this value-add feature has been popular.
  • The higher selling prices achieved for this project are likely to ensure better-than-average margins and underpin Aspen’s profitability over FY17-18F, in our view. We note Tri Pinnacle achieved a GP margin of 31.5% for FY15 and 39.7% for FY16.

Capitalising on mixed projects 

  • Besides Tri Pinnacle, Aspen has two more projects on Penang Island – Beacon Executive Suites and HH Galleria – that play into the strength of the Penang island market, as well as its competitive niche as a developer of affordable homes and an integrated project developer. This will further extend the group’s earnings visibility, in our view.
Beacon Executive Suites – well-located SOHO 
  • Beacon Executive Suites is slated to commence construction in Aug 2017. The development will comprise 227 units of SOHO, spread over 26,390 sq m of estimated GFA. Apart from the SOHO units, this development also has recreational and communal facilities including a sky lounge, bar, pool and garden as well as conference rooms.
  • It is well located, in close proximity to the Penang Japanese School, Penang City Stadium and the future Penang Times Square development. The units are furnished for immediate move-in and equipped with a comprehensive smart service solution option for residents. We expect this project to have an estimated GDV of RM157.1m when completed by 3QCY20F and fully sold. This translates into an average selling price (ASP) of RM503 psf of GFA, in line with market transactions in the city area.
HH Galleria 
  • HH Galleria is an integrated mixed development comprising 398 residences, retail shops and shop houses spread over 90,200 sq m of GFA. It is located along Jalan Chan Siew Teong, off the main thoroughfare of Jalan Tanjung Bungah. Prominent landmarks in the vicinity include Hydro Hotel, Masjid Terapung, Tanjung Bungah Bus Terminal, Tanjung Bungah Post Office.
  • Land cost for this project is based on percentage of GDV of each component instead of upfront cash payment, thus alleviating the land funding cost burden.
  • Construction is scheduled to commence in 1Q2018 and completion targeted for 1QCY22F. We expect this project to reach an estimated RM699.5m in GDV when fully sold.

Riding on the growth of Batu Kawan 

  • The jewel in Aspen’s portfolio is the 245-acre Aspen Vision City (AV City), which is well located; approximately 30km from the Penang International Airport, 23km from the Penang Port, and 5km from the North-South Highway. In particular, the new Sultan Abdul Halim Muadzam Shah Bridge (also known as the second Penang Bridge), provides the link between Penang Island and Batu Kawan on mainland Penang.
  • Located in south Seberang Prai, Batu Kawan is earmarked as the third satellite town of Penang after Bayan Lepas and Seberang Jaya, and is part of Penang Development Corporation’s (PDC) objective to establish an integrated development corridor of Prai-Bukit Minyak-Batu Kawan-Jawi.
  • Penang recorded strong investment of RM55bn over 2008-2015, and contributed nearly 20% of Malaysia’s overall foreign direct investment inflows in 2015, the highest among the states in Malaysia. Increased investments in Penang have prompted the government to embark on the RM27bn Penang Transport Master Plan, aimed at improving connectivity and overcoming traffic congestion in Penang.
  • Batu Kawan, with its 6,000 acres of earmarked space, offers commercial entities the opportunity to develop large-scale projects. In particular, PDC has announced plans to create a comprehensively-planned industrial park with high standard infrastructure facilities in Batu Kawan. Batu Kawan's location is easily accessible from cities in Northern Peninsula Malaysia such as Ipoh, South Thailand and Medan, Indonesia.
  • In addition to residential, commercial, retail, hospital, universities and other facilities, Batu Kawan also boasts a number of upcoming landmark projects such as Penang Design Village, an Eco World Development Group (ECW MK, Hold, TP: RM1.70) development and a Paramount University, developed by Paramount Property, a subsidiary of Paramount Corp (PAR MK, Not Rated). 
  • A joint venture agreement between Penang Development Corporation’s (PDC), Singapore’s sovereign wealth fund Temasek and Economic Development Innovations Singapore has also been signed for the development of a Penang High Tech Industrial park. 
  • PDC also continues to build and plan small and medium enterprises (SME) projects to meet the demand of industrialists. The proposed SME Village in Batu Kawan will consist of industrial plots and 298 units of terrace and semi-detached factories, to be built over five phases.
  • The state government of Penang also intends to make Batu Kawan an Eco City township that is modern, sophisticated and comfortable through sustainable and green technology. PDC is working with the Seberang Perai Municipal Council to create Eco City guidelines for the development of Batu Kawan into an Eco City and such plans have been approved by the State Planning Committee in Jan 2015.
  • We believe that the opening of the RM4.5bn Second Penang Bridge (Sultan Abdul Halim Muadzam Shah Bridge) has been a game changer for Batu Kawan as the area benefited greatly from the improved connectivity and accessibility. In the longer run, plans by the Penang government to establish a bus rapid transit (BRT) system between Laluan Permatang Tinggi and Batu Kawan will further boost connectivity to the west of this area.
  • We anticipate that as the development and economic activity momentum picks up pace in Batu Kawan, it is likely to be a sought after area, given its lower land cost (vs. Penang Island), proximity to major travel nodes and well planned township.

Investment-led job creation ensures a resident catchment area 

  • As a PDC-led initiative, Batu Kawan enjoys the benefits of numerous infrastructure spend and FDI inflows into the industrial parks set up there, such as at the Batu Kawan Industrial Park and the newer Penang International Technology Park (PITP). The former has attracted the likes of Haemonatics Corp (HAE US, Not Rated), Sandisk LLC (Unlisted), Bose Corp (Unlisted), Boston Scientific Corp (BSX US, Not Rated), Hewlett-Packard Inc (HPQ US, Not Rated) and Jabil Inc (JBL US, Not Rated). 
  • Penang International Technology Park (PITP) is a 51:49 JV between PDC and Temasek, and is the state’s effort to fulfil Penang’s aspiration of becoming an international shared services and outsourcing (SSO) hub. According to data from the PDC website, PITP together with BPO Prime (in Bayan Baru) have a total GDV of RM11.3bn, based on our estimates. Creation of jobs in this locality would translate into long-term sustainable demand for housing.
  • As a result of the massive infrastructure spend and greater accessibility, Batu Kawan also attracted the attention of large developers over the past few years including Eco World, Tambun Indah, Paramount and others.

The IKEA and BCSC factor - proximity to amenities 

  • We think one of the key attractions of AV City is its proximity to key conveniences such as the upcoming IKEA AB (Unlisted) store and Bandar Cassia Shopping Centre (BCSC)
  • The IKEA store is scheduled to be completed in 2018 and the BCSC by 2020. When operational, the IKEA store could provide up to 2m sq ft of retail space and lifestyle offerings. This will be the only IKEA store in Northern Peninsula Malaysia. Assuming a 1-2 hour driving radius, this outlet could attract shoppers from as far as Ipoh to Alor Setar, Kedah, in addition to Penangites. 
  • In addition, we think the BCSC, which is 70:30 owned by Ikano and Aspen and managed by Ikano, would likely increase retail and daily conveniences to both the resident population catchment at Batu Kawan as well as potential shoppers in this area. 
  • Mixed development lands of AV City will likely be the closest to these conveniences, giving an added boost to the attractiveness of its properties to potential homebuyers.

Aspen Vision City – an Aspen-Ikano JV project 

  • Aspen Vision City (AV City) is Aspen’s flagship project and also the first jointly-developed IKEA project in Asia. This township spreads over 245 acres, to the west of the Batu Kawan Toll Plaza and west of the Lebuhraya Cassia interchange of the Sultan Abdul Hamid Muadzam Shah Bridge (Second Penang Bridge). Prominent landmarks in the vicinity include Designer Village Mall, Batu Kawan Stadium, Batu Kawan Industrial Park as well as affordable housing Hijau E-Komuniti undertaken by the PDC and the ongoing Utropolis Batu Kawan developed by the Paramount Group.
  • Of the 245 acres of land in AV City, Ikano Penang Sdn Bhd holds the title to the IKEA store land measuring 24 acres. The IKEA store will be the first IKEA in the Northern region of Peninsula Malaysia, while another 51 acres will house the Bandar Cassia Shopping Centre. Columbia Asia Hospital has also entered into an agreement to purchase a 3-acre site to build and operate a hospital. The remaining 170 acres comprise residential units, offices, SOHO, retail, a 20-acre central park, international school and hotels, to be developed in phases over the next 8-10 years.
  • The first phase launched at AV City was Vervea. It consists of 441 commercial units and carpark bays spread over an estimated total GFA of 165,693 sq m.
  • Earthworks commenced in Jun 2015 and selling started in Dec 2015. As at Mar 2017, the project was 83.2% sold. Construction of Vervea is slated for completion by 3Q18. We expect Vervea to fetch an estimated GDV of RM867.6m.
Vertu Resorts 
  • Vertu Resorts was launched in late Dec 2016 and consists of five blocks of residential towers above an 8-storey carpark podium. The project is located within 350m from the upcoming IKEA store and the Bandar Cassia Shopping Centre. The development consists of 1,246 units with two carpark bays per unit.
  • Construction works commenced in Jan 2017 and is slated to be completed by 1Q21. The development is 50% taken up to date. We expect Vertu to have an estimated GDV of RM636.1m.
Viluxe Villas 
  • Viluxe Villas will comprise 133 bungalows with estimated land areas ranging from 3,526 sq ft to 4,920 sq ft. This development is located adjacent to the central park with direct accessibility to the IKEA store and the Bandar Cassia Shopping Centre and the proposed Columbia Asia Hospital. The development will include amenities such as a four-storey clubhouse with private lounge and VIP rooms, gym, yoga room, private roof top function area, and security features such as auto sensor access at the guardhouse and security patrol within the compound.
Vittoria Financial Centre 
  • The Vittoria Financial Centre consists of five blocks of eight-storey commercial buildings and a 10-storey tower with 231 office suites and a four-storey carpark podium. Vittoria Financial Centre is aimed at businesses adapting to the idea of owning scalable workspaces that come with shared services and lifestyle facilities to cater to the needs of start-ups, financial institutions, telecom companies, private organisations and MNCs. We expect services such as comprehensive cloud infrastructure, virtual secretarial services and high-speed fibre internet with redundancies to be provided. Construction is scheduled to commence in 3QCY17F and completion by 4QCY20F.
Bandar Cassia Shopping Centre 
  • This shopping centre is a 30:70 JV between Aspen and Ikano and will be managed by Ikano when completed. Management expects the initial GFA to be c.800,000 sq ft, with potential to increase to 1m sq ft. As the major shopping centre in the area, next to IKEA store, we believe, this mall will be very well received by both residents and shoppers, when completed by 1QCY20F.

Foray beyond the North – potential for medium-term earnings uplift 

  • Aspen has entered into an agreement to buy a 75,636 sq m land parcel in Semenyih, Kajang for a residential development. A deposit has been paid and management expects the transaction to be completed in Sep 2017.
  • Located in the vicinity of Tropicana Heights, Kajang Technology City and Danau Golf Club, this site is projected to house 2,242 residential units which will be available for sale under the Selangor Affordable Housing Scheme. Pending the completion of this transaction and obtaining relevant planning approvals, we have not imputed any accretion into our profit projections or RNAV valuations.
  • We believe that this project could provide additional uplift to our estimates when acquired.

Value-add business model – leveraging on the value chain 

  • Furthermore, Aspen intends to provide greater value to purchasers of its developments through the provision of smart services and other innovative technologies. Through its partnership with IBM, it intends to provide the first comprehensive cloud technology infrastructure platform in Malaysia whereby the platform will bring together technological services and solutions which start-ups, entrepreneurs, application designers, local and foreign enterprises can tap into.
  • By collaborating with Telekom Malaysia, it intends to evaluate and identify suitable collaborations in the development of basic telecommunication services, information and communication technology infrastructure, and the deployment of innovative services for smart city living.


  • Aspen is led by Dato Murly Manokharan as CEO. He is well supported by a team of experienced managers and executive directors who have years of experience and strong local domain knowledge in the property sector.



  • In our opinion, Aspen’s strength lies in its first-mover advantage in a unique business model that provides value-add packages to its homebuyers. 
  • In addition to a cheap landbank (compared to other recent market transactions), the staggered payment structure gives the group asset-light access to a vast landbank. 
  • The strategic tie-up with Ikano not only provides leverage to the highly visible and well-known IKEA brand name, it could potentially open more opportunities for collaboration within the ASEAN region.


  • We believe that Aspen’s activities are limited by its small balance sheet. While completion of ongoing projects such as Tri Pinnacle, Vervea and Vertu could release significant cash flow when completed over the next 2-3 years, there are funding needs for the Bandar Cassia Shopping Centre. Hence this may constrain Aspen’s ability to take on new development opportunities that may arise over the next few years.


  • We believe there are opportunities in the affordable housing segment, given this is the biggest part of the residential market. This coupled with a first mover advantage in providing value-add packages, should attract buyers to Aspen’s developments. 
  • In addition, we believe that job creation thanks to the numerous infrastructure projects and FDI inflows into industrial parks set up in Batu Kawan, should encourage more population inflow and provide longterm sustainable demand for housing.


  • Given the group’s almost sole exposure to the Penang market, we believe that any change in the socio-political and economic environment in Penang is a key risk faced by Aspen.


Acquiring new landbank for future projects 

  • Aspen intends to capitalise on its existing extensive network, local domain knowledge, branding and reputation to source for potential development sites which meet the demands and needs of its target market. The group would likely continue to source for development sites in Penang and Selangor as well as diversify into other cities in Malaysia. 
  • It may also expand into other Southeast Asia nations such as Thailand, the Philippines, Vietnam and Cambodia. This would provide more earnings diversification for the group in the longer run.

Focus on mass-market residential and mixed-development projects 

  • Aspen intends to keep focusing on developing its core business in the mass market segment as it believes that this segment will continue to receive favourable policies in Penang as well as in Malaysia, in general. It would continue to build on and enhance its long-term relationships with suppliers, service providers and contractors to keep construction costs low. 
  • It would also look to work with established brands, such as TEKA for the supply of kitchen and home appliances, and Schindler for the provision of elevator solutions to its developments.

Expansion into new business segments 

  • The group intends to continue strengthening its existing branding and leverage on its existing property development experience to expand into new business segments in order to generate recurring income stream from its projects. These could include investing and implementing technology infrastructure in its developments; retaining and owning balance car parks, especially in its commercial developments; retaining and renting out commercial spaces; creating strategically located advertising space; developing creative ideas such as leaseback of the 20-acre public park area at AV City; building and letting out commercial spaces and kiosks; and outsourcing management of events and outdoor activities to generate recurrent income. 
  • In addition, it could also look to expand its business operations into new areas through JVs and strategic alliances with construction companies, real estate property developers and retailers to tap their areas of expertise.

Streamlining development and construction processes 

  • As the primary focus is the provision of affordable and competitively priced properties to mass-market buyers, efficient cost management is a necessity. This includes keeping financing cost and leverage low by utilising internal sources of funding. 
  • It would also look to streamline its development and construction processes to minimise wastage and unnecessary costs.


1HFY17 earnings boosted by progressive profit recognition 

  • Aspen reported 2Q/1HFY17 net profit of RM13.4m/RM18.5m, a turnaround from slight losses during the same periods in FY16. The better earnings performance was due to greater progressive billings recognised during the current financial year as construction works pick up pace.
  • Although 2Q/1HFY17 net profit made up only 16%/22% of our FY17F forecast, we believe Aspen will meet our full-year expectations as we expect earnings to be back-loaded in 2H on the back of quicker construction progress.

Projected revenue CAGR of 245% over FY16-18F 

  • We project gross revenue CAGR of 245% over FY16-18F as contributions from new and ongoing projects kick in. We expect the bulk of its revenue in FY17F and FY18F to be derived from Tri Pinnacle and Vervea at AV City, with new income from Vertu Resort and potentially Beacon Suites and HH Galleria in FY18F onwards. We have not factored in any contributions from the upcoming launches of Viluxe Villas and Vittoria Financial Centre at AV City into our FY18F projections.
  • We project gross profit to expand by CAGR of 228% to reach RM292.9m by FY18F, thanks to progressive recognition from pre-sold projects such as Tri Pinnacle, Vervea and Vertu. We also anticipate Viluxe, Vittoria, Beacon Suites and HH Galleria to impact the bottomline positively when they are launched.
  • We estimate gross margin to improve from 35.6% in FY16 to 41.5% in FY17F, before dipping to 35.6% in FY18F as the high-margin Tri Pinnacle would have been completed in FY18F.

Underpinned by c.RM1.3bn of locked-in unrecognised sales 

  • As a result of strong property sales, Aspen had unbilled sales of RM1.26bn as at end-Jun 2017. We expect these to be progressively recognised over FY17-18F.
  • We also project additional sales from these ongoing projects, which would add to future sales. Hence, we project core net profit to turn around from a slight net loss of RM0.3m in FY16 to net profit of RM124.2m by FY18F, as the group accelerates construction of its property development projects.

Balance sheet and cash flow metrics 

  • Aspen raised an estimated RM123.5m of gross proceeds from its IPO exercise in Jul 2017, through the issuance of 173.27m new ordinary shares at S$0.23/share. We forecast post-IPO fully-diluted book NAV to rise from RM40.9m at end-FY16 to RM205.2m (or c.RM0.237/share) at end-FY17F. Given the anticipated higher profit generation, we expect the book NAV to continue rising over the next 2-3 years.
  • From a return on equity (ROE) perspective, our core profit and balance sheet projections translate into robust ROEs of 41.4-43.2% in FY17-18F.
  • We expect the group to move into a net cash position by end-FY17F, after factoring in part payment for land acquisitions at AV City, as well as its share of equity for the development of the Bandar Cassia Shopping Centre, due to its strong earnings recognition as ongoing projects are completed. A remaining RM337.3m of land cost payments were outstanding as at Mar 2017; we expect this to be progressively paid over the next 2-3 years.
  • Management has articulated an annual dividend policy of not less than 20% of the group’s consolidated profit after tax and minority interest, commencing in FY18F.


RNAV calculation 

  • We assess Aspen’s underlying value using revalued net asset valuation (RNAV) methodology, to include the full earnings accretion potential to be derived from its longer-dated township projects. The attributable share of surplus between gross development value (GDV) and gross development cost (GDC) of these projects are discounted to present value using a weighted cost of capital of 8.34%.
  • Using this method, we arrived at a total GDV of RM13,209.7m and GDC of RM9,662.9m. This results in an after-tax discounted surplus of RM1,255.4m. Taking into account the remaining assets and liabilities on its balance sheet as well as the IPO proceeds, we arrived at an RNAV of RM1,423.2m (S$459.1m) for Aspen or S$0.53/share.
  • Our target price of S$0.29 is premised on a 45% discount to RNAV. In determining the discount factor, we looked at the listed developers in Singapore and Malaysia. These stocks are currently trading at an average 37%-39% discount to RNAV. However, the range is wide, spreading between a -2% to - 71% discount in Singapore, and between 10% premium to 76% discount in Malaysia. We note that generally, companies with a larger market cap or a bigger proportion of recurrent income versus trading profits tend to trade at below-sector-average discounts to revalued net asset valuation.
  • We expect Aspen’s earnings over the next three years to be wholly derived from development activities until the Bandar Cassia Shopping Centre is completed.
  • The largest proportion of Aspen’s RNAV would be from AV City, which has just started development activities. AV City’s sales rate has so far been strong. The unlaunched portion of AV City and Bandar Cassia Shopping Centre makes up c.62% of the discounted after-tax surplus. Hence, we think a discount of 45%, at the higher end of the sector discount range, is fair.

Initiate with Add rating 

  • We initiate coverage on Aspen with an Add rating given the attractive 26.7% potential upside based on our target price. We believe that Aspen has good earnings visibility through its large locked in presales. Its well-located projects in Penang should continue to attract home buyers going forward.
  • Key catalysts include continued strong FDI inflows into Penang which should create employment and housing demand and more project wins in the affordable housing segment with its unique high-margin value-add package model. 
  • Key risks include large concentration of earnings on AV City and forex translation risks.


Government Policies and Regulatory Risks 

Property business subjected to significant approvals from authorities 
  • Property development is a highly-regulated business and a developer must obtain various permits, licences, certificates and approvals from relevant authorities at both the state and local council at each stage of the development process. Failure to obtain these or all approvals may result in delays or cessation of these projects.
  • In addition, there may be requirements or quotas. For example, the low medium-cost and affordable homes at Tri Pinnacle are subject to price restrictions. There is no assurance there would not be changes in the government and regulatory policies.
AV City land titles being transferred progressively 
  • Titles to the plots of land at AV City are subject to approvals from the relevant authorities. In line with the purchase and development agreement and the respective AV City sale and purchase agreements, Penang Development Corporation (PDC) will apply to the relevant authorities for the title to the parcels of land to be alienated to the AV City JV upon full payment of the purchase consideration for the respective parcels. 
  • At present, Ikano Penang has received the title to Parcel 1A, Bandar Cassia has received the title to Parcel 1B, and AV City has received the titles to Plot 3 and 10. The remaining purchase consideration for Plot 4 and the remaining plots of the mixed development land will be paid once the agreed milestones are reached. Any delays or inability to obtain the respective land titles will affect the group’s operations and financial outlook.

Business Risks 

Short operating track record 
  • Aspen has a short operating history and track record, having been formed in early 2013. As such, there may not be sufficient historical financial information and track record to evaluate the company and its prospects.
  • In addition, the group intends to expand its businesses, to provide smart services, acquire new sites for land banking and may enter into JVs and strategic alliances to carry out development projects and to develop further technologies in connection with smart services. These growth strategies are planned based on the outlook of the current and foreseeable property market conditions, and general economic conditions. There is no assurance that Aspen's expansion plans would be commercially successful and actual outcome may not match expectations.
Problems with JVs 
  • Aspen has entered into JVs with Ikano for AV City and Bandar Cassia, HH Distribution for the development of HH Galleria and Goldbest Venture for AV Synergy.
  • In the event of the default of the Purchase and Development Agreement, Ikano is entitled to withdraw from the development of an IKEA in AV City within five years from the date of the AV City sale and purchase agreement or from the beginning the 6th year till the expiry of the 7th year of the said agreement, if the construction of the catalyst projects have not commenced with fair progress, subject to any extension of time granted by PDC.
  • In the event Ikano withdraws, and where the total purchase price of the BCSC land has been paid, AV Land will pay Ikano RM14.5m, comprising:
    1. 20% of the deposit of the purchase price of the land to build the IKEA store, and
    2. 70% of the purchase of the Bandar Cassia Shopping Centre land.
  • In the event of a default, including failure to commence or proceed with the development of AV City, the IKEA store land and other parcels of AV City where construction works and sales have not commenced shall be transferred to PDC and 80% of the purchase price refunded to AV Land.
Legal disputes 
  • Aspen is in legal dispute with the state council for the Beacon Executive Suites site, in relation to the occupation of Aspen House, for allegedly carrying out development including building works at the site and changing its use from residential to office without prior planning permission approval. This offence is punishable with a fine of not exceeding RM500,000 or imprisonment not exceeding two years.
Reliance on AV City 
  • We estimate about 62% of Aspen’s expected GDV for future developments comes from AV City. 
  • While we believe that Batu Kawan has been earmarked by the Penang government as the mainland site for a major industrial area and the third satellite town of Penang, it is less developed when compared with the island. There is no assurance that amenities, transportation infrastructure or utilities within the proximity of the AV City development will be implemented or completed. This could hinder the pace of sales at AV City.
Forex risks 
  • Aspen generates revenue and income in ringgit but its share price is quoted in Singapore dollar. As such, there are forex translation risks arising from volatility of ringgit to Singapore dollar.

Country Risks 

  • These risks include geo-political and economic risks. As a foreign-listed developer, Aspen could be negatively affected by changes to various laws and regulations in the states in Malaysia and/or changes in government policies to promote a stable and sustainable property market. These include changes to laws on land acquisitions by foreign and non-Bumiputera entities.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-09-29
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.29 Same 0.29