According to a newspaper report, a consortium comprising Gamuda, Evia Real  Estate  (7)  Pte  Ltd  and  Maxdin  Pte  Ltd  is  among  14  bidders  for  a piece of high-demand residential land in the Toa Payoh estate, Singapore. The  consortium  recorded  the  highest  bid  of  S$345.86m  (RM962.5m), which works out to an average land cost of S$8,130 per sq m of gross floor area, or about S$755 per sq ft. (Source: Bernama).

Comments:  This  marks  Gamuda’s  maiden  foray  into  the  Singapore property  development  market  if  it  wins  the  tender.  Gamuda  has  been aggressive  in  acquiring  new  land  bank  and  budgeted  RM3bn  for  the exercise.  Having  allocated  about  RM2bn  for  land  bank  acquisition  in Malaysia, the acquisition of this land bank in Singapore will see Gamuda moving  closer  to  achieving  its  investment  target.  It  could  be  an opportunistic  land  acquisition  for  Gamuda  to  expand  into  the  Singapore market, which is seeing a slowdown currently. Key risks are it is new to the market and a prolonged slump in property demand.

The article did not mention Gamuda’s stake in the consortium. If Gamuda takes a subsidiary stake and the Singapore land bank acquisition is funded by debt, its net gearing of 40% as at 31 January 2015 will increase to a still reasonable level of 56%. Gamuda remains our top BUY in the construction sector  with  RNAV-based  target  price  of  RM5.65.

Source: Affin Hwang Capital Research - 22 Jun 2015