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(Icon) Global Oriental Bhd (11) - Tiny Land Disposal Unlocks Gigantic Value

Publish date: Tue, 04 Nov 2014, 10:20 PM
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I follow the smell of money.



(Be patient. The durian will drop one day)
Today, GOB announced the proposed disposal of 15.6 acres of leasehold development land in Taman Equine, Seri Kembangan, Selangor, for cash consideration of RM142 million. This represents sale price of RM9.1 million per acre or RM210 per square ft. 
After the proposed disposal, the group would still have approximately 90 acres of land in the same area.
According to the announcement, the proposed disposal is targeted to be completed by April 2015.
The proposed disposal will give rise to net gain of RM85 million. Based on 227 million shares, EPS will be enhanced by 37 sen. 
The RM142 million cash proceed will be used to repay borrowings (RM35 million), working capital (RM104 million) and expenses (RM3.5 million).
Net assets will increase by closed to 30% from RM292 million to RM377 million. Net assets per share will increase from RM1.28 to RM1.66 per share.
Gearing will decline from 0.76 times to 0.50 times.
Concluding Remarks
The latest development caught me by (pleasant) surprise. I always know that GOB is undervalued from RNAV point of view. However, I have always resisted the temptation to promote it as an asset play. Mostly, I found it attractive for its earnings growth potential. In this regard, the land disposal really came in as a bonus point.
It is also timely. GOB is in the midst of constructing Damen and its SOHO component with GDV and / or Open Market Value of approximately RM1 billion (please refer to my previous posts for details). The entire project is targeted to be completed by end 2015. I believe the group will require significant funding during the construction period. The announcement mentioned that out of sale proceed of RM140 million, closed to RM100 million will be used for working capital. I believe it will mostly be used to fund the Damen project, thereby reducing GOB's need to draw down bank bridging loan. This will reduce GOB's exposure to financial risk.
I have always been a big fan of GOB. However, I have to admit that even I had seriously underestimated its deep value. The company's market cap now is RM211 million. The sale of a small parcel of land (15.6 acres) alone already bring in RM142 million cash. God knows how much should the Company be worthed if we really factor in its remaining 90 acres of land in Seri Kembangan,  350 acres of land in Batu Kawan (Bandar Cassia) and its RM1 billion Damen project at USJ Subang (SOHO is 95% sold and target to be completed by 2015). 
I am in no hurry for GOB to run. I believe it is deeply undervalued. I will be patient.
The durian will drop one day. 
Have a good evening.
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3 people like this. Showing 6 of 6 comments

Ricky Kiat

Good news for value investor who still hold it .cheer...

2014-11-05 00:15


Thanks again for the sharing! Cheers!

2014-11-05 10:57


Icon articles always move stocks! Good job!

2014-11-05 21:20


durian drop? no durian drop. only balls drop.


2015-03-26 01:13


Thanks for sharing!

2015-03-30 20:21

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