News

• Homeritz announced that Embrace Industries Sdn Bhd, a wholly-owned subsidiary of Homeritz, had on 08 July 2015 entered into a sale and purchase agreement with Wong Ba @ Wong Kim Koon for the purchase of a freehold agricultural land measuring approximately 4.0746 hectares (~438.586 sq ft) located at Mukim Jalan Bakri, District of Muar, State of Johor for a total cash consideration of RM7.67m.
• The acquired l and is adjacent to Homeritz’s 5 existing factories and a vacant land with a total built-up area of about 455,000 and 84,507 square feet respectively.
• The proposed acquisition is expected to be completed by 1st quarter of FYE 31 August 2016. Financial Impact
• The price tag of RM7.67m will be entirely funded by cash raised from internally generated fund. We deemed the price to be fairly valued. At MYR17.5 psf, the acquisition is within the price range of MYR15-65 psf for freehold agricultural land in Jalan Bakri, District of Muar, based on our quick checks in several property portals. We believe the purchased agricultural land is a good deal gi ven the land’s main road front age and within close proximity with its existing 5 factories.
• The group’s FY15 projected net cash will reduce to RM44 from RM52m (including the acquisition of 35% of Embrace Industries Sdn Bhd). Balance sheet remained healthy as post acquisition, cash is equivalent to 15.9% of market price.

Comments

• Given the new land to be acqui red are strategically located within close proximity with its existing 5 factories plus a vacant land (which is expected to be used for future capacity expansion in CY16), we are positive on the land acquisition that will be used to add new production capacity in the future.

Forecasts

• No change to our earnings forecasts.

Rating

• Maintain BUY, TP: RM1.21 (+32% upside)
• Posi tives: 1) the group could benefit from strong USD; (2) its revenue and PATAMI are expected to grow at CAGR of 8% and 21% respectively from FY14 to FYE16; (3) forecasted FY15 net cash per share of 14.7sen; and (4) still attractive FY15E DY of 3.8%, based on 40% payout ratio.

Negatives

• USD weakness; high raw material prices; high labour costs; unexpected economic downturn; and production or operational risks.

Valuation

• Given Homeritz’s high earnings visibility, we maintain our TP at RM1.21 based on unchanged 10x CY16 P/E.

Source: Hong Leong Investment Bank Research - 9 Jul 2015