Fiamma Holdings (Fiamma) announced that it had paid RM109.6m as land premium for a 0.76 hectares plot of land along Jalan Yap Kwan Seng, Kuala Lumpur (Lot 154), on behalf of its unit Sinaran Urusjuta, which is principally involved in the business of real estate activities. The land is strategically located in Kuala Lumpur city centre, located near its existing 1.4-acre plot of land in Jalan Yap Kwan Seng. Based on our preliminary estimates, market value of the Lot 154 land is estimated at RM183m based on RM3,000 psf. The land is to be used for mixed development (20% residential and 80% commercial). Nevertheless, we make no adjustments to our estimates pending further guidance on the land development by the management. We maintain our Neutral call on Fiamma with an unchanged sum-of-parts (SOP)-based TP of RM1.00.

• Alienation land approval. Fiamma’s wholly-owned subsidiary, Sinaran Urusjuta Sdn Bhd, has been granted Alienation Land Approval by Pejabat Tanah and Galian Wilayah Persekutuan (land office) on 17 June 2021 to develop Lot 154 upon the payment of Land Premium.

• Information on the land. The land is strategically located in the Kuala Lumpur city centre with upscale office buildings, fashion malls, luxury hotels, and various amenities and expansive views from Petronas Twin Towers. The land is also synergistically located near to its existing 1.4-acre plot of land in Jalan Yap Kwan Seng.

• Financial Impact. The land premium is funded via a combination of internally generated funds and external borrowings. Assuming it is financed 70% by external borrowings, the Group’s gearing is estimated to increase from 0.16x to 0.25x. Development of the land will undoubtedly contribute positively to the Group’s future earnings, which is likely to be sooner than later considering this huge capital outlay.

• Outlook. We remain cautious over Fiamma’s near-term outlook as we foresee domestic demand to remain soft with consumer sentiment weakened by tighter monetary conditions, and elevated inflationary pressures. Nevertheless, we remain positive over the Group’s long-term prospects however, underpinned by growing middle class and household income growth, which should lead to stronger consumer spending. The Group’s land bank for property development also provides further earnings and potential valuation upside, once unlocked.

Source: PublicInvest Research - 8 Sept 2023