Aspen (Group) Holdings Ltd - A gem in the North

Company background
Aspen (Group) Holdings (Aspen) is a property development and real estate investment group based in Malaysia. Aspen’s key value proposition is its niche in the value-added affordable mass residential market in Penang. It also has a strategic relationship with Ikano Pte Ltd as the joint owner of the Bandar Cassia Shopping Centre and joint master developer for the mixed development Aspen Vision City (AV City) in Bandar Cassia, Batu Kawan.
 
Unique value-added residential development model
In addition to understanding its customer needs and aspirations, Aspen’s unique business model of providing value-added packages to its homebuyers allows it to upgrade its development margins while maintaining its exposure to the large affordable housing market. Tri Pinnacle, the first of such projects, was well received and is currently 82.2% pre-sold.  
 
Riding the Batu Kawan growth wave, strategic Ikano partnership
AV City is a joint development between Aspen and Ikano. In addition to being located in the up-and-coming Batu Kawan area, the mixed development will have an IKEA store and Bandar Cassia Shopping Centre. This IKEA store is likely to be the only one in the North of Peninsula Malaysia. These two complexes would increase the attractiveness of this township, in our view. In addition, an attractive land payment structure would ensure an asset-light landbanking strategy.

Strong earnings CAGR, high ROE
Based on the schedule of project completions, we expect Aspen to post 245% revenue CAGR in FY16-18F and 228% gross profit CAGR in FY16-18F. We arrived at these figures based on the RM1.26bn unrecognised locked-in residential sales at end-Jun 2017, largely from Tri Pinnacle and Vervea. Owing to the group’s strong profit recognition profile, we believe its FY17-18F ROE is likely be superlative at 35.4%.
 
Initiate coverage with Add rating
We value Aspen’s RNAV at S$0.53/share, taking into account the discounted potential profits and the IPO proceeds raised recently. Our target price of S$0.29 is premised on a 45% discount to end-FY17F RNAV, in line with Singapore and Malaysia developer discounts. This offers investors potential 26.7% upside. Key risks include large concentration of earnings on AV City and forex translation risk.