Kossan has proposed to disposed its industrial land in Kuala Langat, Selangor to Best Eternity Recycle Technology Sdn Bhd for RM153.4m. The disposal price is attractive, higher than the current market value assessed by the independent valuer. Moreover, the funds generated would be channelled to hasten the development in their Bidor land. Net gearing is estimated to fall from 27.6% to 17.1% on a proforma basis. We maintain HOLD with unchanged TP of RM5.00 based on mid-FY20 EPS pegged to PE multiple of 27x (+1.5 SD of 3-year mean).

NEWSBREAK

Kossan has proposed to dispose its industrial land to Best Eternity Recycle Technology Sdn Bhd (BERT) for a total cash consideration of RM153.4m. 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

Positive. The disposal price of RM153.4m is higher than the previous offer from Liansheng Paper (Malaysia) Sdn Bhd (RM147.7m back in January 2020). This latest offer is higher than (i) the estimated current market value by the independent valuer of RM145m and (ii) net book value of the land at RM96.7m (as at FY18). We reckon that this 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 RM39m to Kossan. The funds raised will be utilised to hasten the development of the Bidor land. To recap, Kossan had acquired 2 pieces of industrial land in Bidor with a view to consolidate and centralise all future business expansion to the site, which we understand ground works are scheduled to begin in September 2020.

Gearing. With the land disposal, Kossan’s net gearing is expected to fall from 27.6% (as at FY19) to 17.1% on a proforma basis.

Forecast. Maintained.

Maintain HOLD, TP: RM5.00. We maintain HOLD call with unchanged TP of RM5.00. Our TP is a function of mid-FY20 EPS pegged to a PE multiple of 27x (+1.5SD 3-year historical mean).

Source: Hong Leong Investment Bank Research - 3 Apr 2020