News 

MCHB’s  wholly- owned  subsidiary,  BSS  Development Sdn  Bhd  (BSSD)  has  acquired  a  164  acres  of  vacant industrial  land  in  Seremban,  Negeri  Sembilan,  for RM71.5m  (or  RM10 psf).

The  intended  development  of  the  land  shall  comprise industrial  park  with  full  facilities  and  is  expected  to generate  an estimated GDV of at least RM170m.

Highlights   

The  acquisition  is  not  a  surprise  as  it  is  in  line  with MCHB’s  growth  strategy  in  strengthening  its  foot  stay in  Seremban.  The  acquisition  would  enla rge  MCHB’s industrial landbank  to 1,164 acres in total.

The land is located in Bandar Sri Sedayan (BSS)  and would  further  enhanc e  the  appreciation  value  to  the properties  within the vicinity .

Development on the land  is expected to commence by 2015 and it  would further complement  and  extend the lifespan of   Sedayan  TechValley (STV) in BSS. Despite no  mention  on  the  timeframe  of  the  development,  we believe  it  would  likely  be  completed  in  2  years   and ready for sale, similar to its STV 1 & STV 2.

Pricing- wise,  we  deemed  the  purchase  price  of RM71.5m to be fair as it falls within the mark et value of RM72m.

With  nett  sellable  area  of  approximately  75%  of  the land, the ASP is RM31.73 psf. We view the ASP to be fairly reasonable  with  potential  for further  appreciation as  compared  to  current  market  value,  which  are ranging  between  RM30-50  psf.

Even  if  the  acquisition  is  being  funded  via  a combination  of  internally  generated  funds  (50%)  and bank  borrowings  (50%),  MCHB’s  net  gearing  will increase  from 0.08x to 0.14x. As  such level, there are still  gearing  headroom  for  the  group  before  reaching the 0.5x benchmark.

Risks

• Slowdown  in sales;
• Escalation in construction;
• Raw material  costs; and
• Downturn  in Seremban  and Johor.

Forecasts

• Maintained.

Rating  BUY

• Positives :  Offers  great  exposure  to  the  thriving satellite town of Seremban.  
• Negatives: Lack of landbank diversification means the company’s fate is completely tied to that of Seremban.

Valuation 

• Maintain  TP  of  RM3.74  (20%  discount  to  RNAV), which  implies  FY15E  P/E  of  8.2x.  This  remained undemanding  vs.  mid  to  large-c ap  peers  who  are currently trading at 12-18x.  Maintain  BUY.

Source: Hong Leong Investment Bank Research - 22 Sep 2014