Gamuda is acquiring a 9.1-acre vacant residential and commercial land in Ho Chi Minh City, Vietnam for VND7,200bn or RM1.47bn from Tam Luc Real Estate Corporation. The shovel-ready land has an estimated GDV of RM5.1bn which is expected to be developed over the next 6 years. This transaction marks the second of Gamuda Land’s quick turnaround strategy acquisition in FY23 – the Group aimed to acquire 5 QTPs up till FY24. Including this piece of land, Gamuda owns approximately 310 acres of land area in Vietnam with a combined GDV of RM18.5bn. We are optimistic on this development as Vietnam represents c. 20% of Gamuda Land’s overall sales. Assuming a high teen pre-tax margin, we reckoned that earnings from this acquisition to contribute to Gamuda’s earnings as early as from FY25 onwards, adding 7% on average to the Group’s bottomline over a development period of 6 years. All told, we are leaving our FY23-25 earnings forecast unchanged pending deal completion in 1QFY24. Our Outperform call is affirmed with an unchanged sum-of-the-parts TP of RM5.10.

• Rationale of the acquisition. Prime land bank sites are scarce, especially in central districts where authorities have imposed restrictions on high-rise residential development for the 2021-2030 period. There has been a steady decrease in primary supply between 2018 and 2022, which results in pent up demand. Thu Duc City has a growing population of 1.2m with the highest urbanization rates in Vietnam (>83%). Hence, the proposed acquisition would enable Gamuda to match the increasing demand for properties in the area.

• Decent pricing. The purchase price of RM1.47bn which is c. RM3,708.4 psf represents a marginal discount of 2% to its current market value of RM1.49bn or c. RM3,758.9 psf on average, as valued by an independent property valuer via residual and direct comparison method. The acquisition would be funded via internally generated funds (42%) and borrowings (58%). Post-acquisition, we estimated that Gamuda’s cash pile will be reduced by 18% to RM2.8bn. Meanwhile, the Group’s net gearing is expected to climb to 0.24x from 0.1x (as of 3QFY23).

• Vietnam to drive Gamuda Land’s earnings. We are optimistic on this development as Vietnam represents c. 20% of Gamuda Land’s overall sales. We expect construction works would commence with the development of apartments in c. 3QFY24. Nevertheless, assuming a high teen pre-tax margin, we reckon that earnings from this acquisition to contribute to Gamuda’s earnings as early as from FY25 onwards, adding 7% on average to the Group’s bottomline over a development period of 6 years.

Source: PublicInvest Research - 21 Jul 2023