Buying 21.1 Acres of Land in Kwasa Damansara for RM114.8mn

Elegance Sonata Sdn Bhd (ESSB), an indirect wholly-owned subsidiary of GADANG, had entered into sales and purchase agreements with Kwasa Development (3) Sdn Bhd, for the proposed acquisition of 21.1 acres of freehold land in Kwasa Damansara, Selangor for RM114.8mn (or RM125psf). The proposed acquisition is expected to be completed in 2Q2024.

The freehold land is strategically situated in Kwasa Damansara, a prime location with excellent connectivity. It is specifically located at 1.2km off the left-hand side of the Jalan Sungai Buloh, travelling from Kota Damansara to Sungai Buloh. The freehold land is easily accessible by main highways with 2 MRT stations nearby.

According to the preliminary plan, the total GDV of the new development is about RM700.0mn. Spanning a development period of minimum 5 years, the land is slated for a residential development featuring 628 units of condominiums and 152 units of stratified double-storey terraced houses together with amenities. The proposed development is expected to commence in 2H2024.

Our View

Overall, we are positive about the proposed acquisition as the deal aligns with the group’s strategy of acquiring prime land in strategic locations in order to expand its property development segment. The purchase price of RM114.8mn represents 16.4% of the total GDV, which falls below the general rule of thumb of 20%. Meanwhile, the acquisition price is at a slight discount to the market value of RM115.0mn as appraised by independent valuer, CCO & Associate (KL) Sdn Bhd. Therefore, we deem the acquisition price reasonable. Moreover, the land comes with a converted title designated for "residential" use, along with secured development approval for residential development that will expedite the development process.

In terms of funding, a sum of RM76.4mn had already been paid by ESSB as part of the development rights agreement entered by both two parties in 2017. Therefore, ESSB is required to pay the remaining balance of RM38.4mn within 3 months from the unconditional date. We believe funding will not be an issue given that the group has a strong balance sheet with net gearing of 0.02x as of end-1QFY24.

Forecast

No change to our FY24 to FY26 earnings forecasts for now, pending the completion of the acquisition.

Valuation

No change to our target price of RM0.28, based on SOP valuation. Maintain Sell call on the stock due to valuation grounds.

Source: TA Research - 29 Nov 2023