Gamuda is acquiring a 532 acres vacant mixed development plot of land in Rawang, Selangor for RM360m from Kundang Properties SB, a company affiliated with IGB. Accounting this parcel of land, Gamuda has a total of 1,432 acres of land area within the vicinity which sees an average uptake of more than 90%. The acquisition acts to replenish Gamuda Gardens’ remaining undeveloped landbank of ~648 acres (approx. RM7.6bn GDV) which is expected to be fully developed in the next 10 years. We view this development positively as Gamuda Gardens is among the top 3 bestselling projects in Gamuda Land’s domestic sales. Nevertheless, the acquisition is only set to contribute to Gamuda’s earnings from FY26 onwards. Hence, we are leaving our FY23-25 earnings forecast unchanged pending its completion in 2QFY23 and earnings recognition timeline. Our Outperform call is affirmed with an unchanged sum-of the-parts TP of RM4.30.

• Rationale of the acquisition. The subject land is approx. 532 acres of vacant mixed development plot, located a stone’s throw away from Gamuda Gardens in Rawang, Selangor. The acquired land is planned as an extension of the existing Gamuda Gardens township which offers luxury homes with distinguished concept and pricing. According to Gamuda, the subject land would bring in substantial footfall, following a toll-free access from Gamuda Gardens to Rawang town. Thus, the subject land is complementary to Gamuda Gardens’ upcoming launches of retail, leisure and commercial properties in the next 2 years.

• Fair pricing. The purchase price of RM360m which is approx. RM15.53 psf represents a 15.8% discount to its current market value of RM417.1m or approx. RM18 psf on average, based on latest land transactions recorded within 5km radius in the past 3-4 years. The acquisition would be funded via internally generated funds and borrowings. To recap, Gamuda has a cash pile of RM3.2bn (post ERS Energy acquisition) and a low net gearing of 0.16x as of 1QFY23.

• Gamuda Gardens expansion. We view this development positively as Gamuda Gardens is among the top 3 bestselling projects in Gamuda’s property domestic sales. The acquisition is expected to expand Gamuda Gardens’ remaining undeveloped landbank of ~648 acres with a development period of 10 years. Nevertheless, the subject land will not affect the Group’s bottomline in FY23-25 as earnings accretion from this plot of land is expected to commence from FY26 onwards until FY32. Overall, including this acquisition, Gamuda owns a total of 3,876 acres of landbank with an accumulated GDV of RM62.9bn as-to-date.

• 100% digital IBS. Gamuda announced 100% of their future developments will be built using a next generation digital industrialised building system (IBS). Its usage reduces 40% of carbon footprint as well as construction labour by 55%. Homes can be delivered at least 12 months ahead of schedule using the next generation IBS construction method v 24 months for landed & 36 months for high rise properties using the conventional construction method, resulting in an increase of the property inventory turnover rate by ~50% at least, theoretically, from ~1.85x as of FY22.

Source: PublicInvest Research - 4 Jan 2023