Kossan proposed to dispose its industrial land in Kuala Langat, Selangor to Liansheng Paper (Malaysia) Sdn Bhd for RM147.7m. The disposal price seems fair when stacked against the estimated market value; c.2% premium. Additionally, the funds generated would be channelled to hasten the development in their Bidor land. Net gearing is estimated to fall from 29% to 18% on a proforma basis. We maintain our forecasts, reiterate HOLD with unchanged TP of RM4.44 based on mid FY20 EPS pegged to PE multiple of 24x (3 year mean).

NEWSBREAK

Kossan proposed to dispose its industrial land to Liansheng Paper (Malaysia) Sdn Bhd (LSP) for a total cash consideration of RM147.7m. The vacant freehold industrial land of approximately 4.2m sq ft is located in the District of Kuala Langat, Selangor. The proposed disposal is expected to be completed by 1Q21.

HLIB’s VIEW

Fair pricing. The disposal price of RM147.7m seems relatively fair as it is close to the estimated current market value by the independent valuer of RM145m; the net book value of the land is RM96.7m (as at FY18). We reckon that it is a good opportunity for Kossan to realize the value of the land, which is currently not economically utilised.

Gains. The proposed disposal is expected to result to a net gain of approximately RM35.4m to Kossan. The funds raised will be utilised to hasten the development of their Bidor land. To recap, Kossan had acquired 2 pieces of industrial land in Bidor in with a view to consolidate and centralise all future business expansion to the site.

Gearing. With the land disposal, Kossan’s net gearing is expected to fall from 29% (as at 3Q19) to 18% on a proforma basis.

Forecast. Maintained.

Maintain HOLD, TP: RM4.44. We maintain HOLD call with unchanged TP of RM4.44. Our TP is a function of mid FY20 EPS pegged to a PE multiple of 24x (the stocks 3- year historical mean)

Source: Hong Leong Investment Bank Research - 17 Jan 2020