News

To acquire 41 plots of leasehold (expiring on 27 Jan-2103) residential land measuring 386,499 sq ft (~8.9 acres) located in Seksyen U10 Shah Alam for RM29.0m (RM74.9/sq ft) from Melati Ehsan Holdings Bhd (MEHB). The deal, subject to fulfilment of conditions precedent, is expected to be completed by 3QCY14.

Highlights

About the land… The land acquisition is part of MEHB’s Bukit Bayu bungalow development. It is located next to Bukit Cherakah Forest Reserve and surrounded by Bukit Jelutong, Sunway Kayangan, Sunway Alam Suria and Cahaya SPK housing development. It is ~5km away from Guthrie Corridor Expressway (see Figure #1).

Price is reasonable… Based on the price tag of RM74.9/sq ft, we believe that the acquisition price is reasonable compared to the neighbouring asking price of RM50-100/sq ft. Moreover, the land is complete with common infrastructure, i.e. road, drains, sewerage plant, etc.

GDV of >RM100m… Kimlun intends to sell bungalows units on this piece of land. Given that the 41 plots of land ranges between 8,000-13,000 sq ft; we believe that each bungalow unit can be sold up to ~RM2.1m/unit (~RM400/sq ft). Hence, translating to a potential GDV of ~RM100m. Bungalow lots within the vicinity is already transacting at RM350-600/sq ft (RM2.0m-3.0m/unit).

Balance sheet impact… Based on 4QFY13’s balance sheet, this acquisition will increase Kimlun’s net debt levels to RM232.0m from RM203.0m, with net gearing levels rising to 79.2% from 69.3%. However, this will not be an issue as the proposed rights issue will raise RM66.1m cash, coupled with the RM46.5m Nilai land disposal, bringing a total cash proceeds raised of RM112.6m.

Risks

Execution risk; Regulatory and political risk (both local and abroad); Rising raw material prices; and Unexpected downturn in the construction and property cycle.

Forecasts

Unchanged, subject to revision post analyst briefing on 20 Mar-14.

Rating

HOLD

We are MEDIUM TERM POSITIVE on this acquisition as it will provide development profits continuity after the Hyve Cyberjaya and Opus Medini. Kimlun will also be able to continue their close working relationship with MEHB as it has been benefitting from MEHB’s building projects. In view of the attractive discount of RM1.10 rights issue subscription price and potential further upside from the free warrants, we are favourable on taking up the rights issue. However, we are maintaining our HOLD call on to the stock at this price level.

Valuation

Maintain Target Price of RM1.63 (based on theoretical exrights Target Price) based on unchanged 10x mid-FY14 earnings. Subject to revision post analyst briefing on 20 Mar- 14.

Source: Hong Leong Investment Bank Research- 6 Mar 2014