News

GLMC is acquiring 70.51 ha of leasehold land in Kulaijaya, Johor for RM22.8m, or RM3.00 psf. GLMC is doing this by acquiring the entire issued and paid-up capital of Precious Quest Sdn Bhd (“PQSB”). This is an RPT as one of the shareholders of PQSB is Mr Fong Loong Cheong, who is the brother of Datuk Fong Loong Tuck, the Executive Vice- Chairman and major shareholder of GLMC.

The Land is located near Scientex Kulaijaya, and is proposed for mixed development.

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. GLMC did not give a timeline for the development but we believe it will be in no hurry to launch, given the challenging market environment in Johor currently and the relatively low holding cost.

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, under the terms of the SPA, GLMC will pay 90% of the consideration in 8 stages, tied to the launch of Phase 1 of the said land. Therefore, we expect balance sheet stress to be minimal.

We are unable to estimate the impact to RNAV and earnings as Glomac did not provide the estimated GDV from the new land. We will seek more clarity on this issue when we speak to management.

Pros / Cons

We are positive on this move as it allows GLMC to diversify to other states in Malaysia. Currently, its projects are predominantly concentrated in Klang Valley.

We understand that the land is situated close to Taman Scientex in Kulaijaya. A quick check with property websites indicates 2-storey link homes in Kulai typically have an asking price below RM300k. We believe GLMC is likely to commence by rolling affordable homes first, similar to Bandar Saujana Utama.

We believe GLMC should be able to secure good margins thanks to low land cost of RM3.00 psf. As a comparison, IOI Properties is carrying its Kulaijaya land at an average of RM4.22 psf on its books.

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 - 24 Mar 2014