News

To acquire a piece of freehold vacant agriculture land in Bandar Kundang, Gombak, Selangor, from Hartabumi K4 S/B for RM48.9m. The land measures ~19.33 ha (~2.08m sq ft).

Comments

Facilitate expansion… This new plot of land will be used as a warehouse facility to store Eversendai’s materials, tools and equipment as its existing plant facility at Rawang has insufficient space in view of increasing operational needs from local projects.

Planning for the future… The Kundang land, which measures ~2.08m sq ft, is a sizable plot. It is 3x the size of its Rawang plant which measures 676.49k sq ft in land area and slightly larger than its Sharjah plant which has a land area of 1.73m sq ft. It is approximately the same size as its new O&G fabrication facility in Ras Al Khaimah, Dubai. We believe the large tract of land will be utilised for future expansion.

Valuation looks reasonable… The land cost works out to RM23.50/sq ft, which according to our channel checks is reasonable as the selling prices for agriculture land in Kundang ranges from RM18-28/sq ft. However, this is in pale comparison to Gamuda’s 89.9 acres Kundang land acquisition which works out to RM12/sq ft.

Has the balance sheet… As of 1HFY13, Eversendai is in a net debt position of RM52.3m, 6% net gearing. Hence, assuming an outright cash outlay, Eversendai net debt and net gearing will increase to RM101.1m and 12% respectively.

Risks

• Execution risk;
• Regulatory and political risk;
• Rising raw material prices;
• Unexpected downturn in the construction cycle; and
• Sharp fluctuation in forex.

Forecasts

Unchanged.

Rating

BUY

Positives:

(1) Contract wins for O&G structural steel works;

(2) Additional new structural contract wins; (3) Success in the CIS market.

Negatives:

(1) Affected by timing in construction profits; (2) Low trading liquidity.

Valuation

Maintain TP of RM1.65 based on unchanged 10x average FY13-14 earnings.

Source: Hong Leong Investment Bank Research - 9 Sep 2013