AMRESEARCH has reinitiated coverage on IJM Land Bhd with a buy at RM1.31 and a fair value of RM2.40, based on 40% discount to its estimated fully diluted net asset value (NAV) of RM4 per share.

In a report last Friday, the research house said its investment thesis centred around five factors.

First, former property arm IJM Properties was injected into the enlarged group at a seemingly low valuation of RM1.15 billion compared to its estimate of RM2.3 billion — the reason being that parent IJM Corp (IJM) was paid largely in new shares.

Second, IJM Land is under-researched and under-owned by the investment community although buying interests have gained traction.

AmResearch said the maiden launch of The Light should propel IJM Land onto investors’ radar screen. It said IJM Land’s development assets anchored by flagship The Light Waterfront Penang (The Light) accounted for 84% of its NAV with investment properties at 14%.

Third, trading liquidity is quite low but parent IJM has made known its intention to gradually trim its 77% stake to 60% by placing out shares to institutional investors.

This should accelerate share price recovery to fair value, given likely increase in free floats and more efficient pricing from institutional investors.

Fourth, IJM Land has attributes of a blue-chip sector proxy. Given low institutional shareholding, it can leverage on parent IJM’s wide following to build up a solid shareholding structure.

AmResearch said based on paid-up of 1.1 billion shares, IJM Land’s market capitalisation was RM1.45 billion, making it the fifth largest property company on the local exchange even at its current depressed price of RM1.31 per share.

Fifth, it said valuations were very attractive. At RM1.31 per share, AmResearch said IJM Land was trading at a steep discount of 67% to its NAV.

It said with earnings set to rise by a strong compounded average growth rate (CAGR) of 49%, the prospective fully diluted price-earnings multiple would move from 12  times in FY10 to only six to eight times in FY11-FY12.

AmResearch said earnings were projected to rise from RM84 million in FY09 (March) to RM130 million in FY10, RM217 million in FY11 and RM270 million in FY12, with three-year earnings CAGR of 49% underpinned by launch of its RM5.2 billion The Light in the third quarter of 2009.

It said demand for The Light should be strong given its strategic location, exciting value propositions and scarcity of quality development projects in Penang.

AmResearch said with the estimated land cost of only RM50 per square feet, the development was highly lucrative with margins of at least 35% versus the norm of 20%-25%.

It said IJM Land had locked in sales of RM700 million, while annual presales were expected to expand from RM750 million in FY10 to more than RM1 billion from FY11. AmResearch added that the balance sheet was expected to remain strong, with a net gearing of 25%.