Highlights

• TILB announced that its wholly-owned subsidiaries have entered into 4 sale & purchase agreements (SPA) with Naga Utama Construction Sdn Bhd for the purchase of 16 parcels of freehold land in Mukim 14 and 15, Daerah Seberang Perai Tengah, Pulau Pinang, totalling 18.8 acres for RM38.9m (RM47.50 psf).

• The purposed of the proposed land acquisition is for residential development with details, potential GDV and development costs unknown for now.

• Barring unforeseen circumstances, the proposed acquisition is expected to be completed by 2QFY15.

Comments

• The acquisition is not a surprise as it is in line with TILB’s growth strategy in expanding their landbank in mainland Penang in order to expand the group’s revenue base.

• The land acquisition is located at a close proximity to Bukit Mertajam Town, which is a matured and established residential area. It is also easily accessible via numerous roads which are surrounded by public amenities.

• The land is acquired without vacant possession and is currently occupied by squatters. However, this does not appear to be a concern given the group’s ample years of experience in settling with squatters occupying its lands previously.

• Pricing-wise, we deemed the purchase price of RM38.9m to be fair as it falls under the price range of RM16-50, according to transactions done throughout 2014 in the surrounding areas.

• Furthermore, we see potential appreciation in land value given its strategic location, along with the booming demand for properties in the mainland due to skyrocketed house prices in Penang Island.

• The group intends to fund the proposed acquisition through internally generated funds and/or bank borrowings. Assuming 70% of the price tag is funded through borrowing (RM27.2m), the current net gearing position of the group of 0.04x is expected to increase to 0.14x.

Risks

• Slowdown in mainland Penang property market (unlikely), as it is 100% concentrated in Penang.

Forecasts

• Unchanged.

Rating

BUY

Positives

• 1) Strong beneficiary of rising land pricesin Penang mainland; 2) Pearl City Flagship will provide the main earnings driver; 3) Undemanding valuations; 4) Attractive DY

Negatives

• 1) High project concentration in Penang.

Valuation

• Target price remained unchanged at RM2.14 (based on unchanged 10% discount to RNAV). Maintain BUY.

Source: Hong Leong Investment Bank Research - 17 Mar 2015