News

Glomac is acquiring 62.6 acres of leasehold land from Pertubuhan Peladang Kawasan Kuala Selangor for RM23.0m, or RM8.43 psf.

The Land is located in Sungai Buloh within Glomac’s existing Bandar Saujana Utama (“BSU”) township, and is currently designated for agricultural use.

The Proposed Acquisition is expected to be completed in FY04/15, and Glomac does not expect any earnings impact in FY04/15. The estimated GDV of the land was not disclosed.

Financial impact

No near-term earnings impact, as stated by management. We also believe that Glomac may not commence development in FY16, given it has RM800m worth of pipeline launches in BSU4 (extension phase of BSU).

Balance sheet impact will also be very minimal as the RM23.0m land cost would only cause net gearing to rise from 0.20x to 0.23x. Moreover, Glomac is expected to pay the balance 90% of the RM23m only in FY04/15.

However, we are unable to estimate the impact to RNAV and earnings as Glomac did not provide the estimated GDVD from the new land. We will seek more clarity on this issue in the upcoming analyst briefing.

Pros / Cons

We are positive on this move as it allows Glomac to continue its highly successful RM1.7bn GDV BSU township.

BSU has been fully launched, following the launch of RM35m worth of commercial projects in 1H FY04/14. Glomac intends to develop the extension phase known as BSU4 in FY04/15 with estimated RM800m GDV.

Therefore, this new 62.6 acres of development land will allow Glomac to capitalize on its success in the locale.

While the RM8.43 psf paid for this land is higher than the RM5.06 psf Glomac paid for its Kuala Selangor land acquisition in Feb 2012, it is lower than the RM9.36 psf Mah Sig paid for its Rawang Land. We consider the land cost to be fair.

Risks

Slowdown in sales.

Forecasts

Maintained.

Rating

HOLD

Positives: Strong land-banking, branding and execution track record.

Negatives: Lack of liquidity / free float

Valuation

We maintain our TP at RM1.16 (discount to RNAV remains at 40%) and our HOLD recommendation on the stock.  

Source: Hong Leong Investment Bank Research - 17 Mar 2014