What’s New

• HCK Bestari Sdn Bhd (HCKBSB), a joint venture company between HCK Capital Bhd and Perbadanan Kemajuan Negeri Selangor (PKNS), has proposed to purchase a 40,470 sq m vacant land along Jalan Zuhal U5/179 in Seksyen U5, Shah Alam for RM80m cash from PKNS.

• The land is planned for a mixed development comprising residential and commercial properties but total development costs and gross development value (GDV) are yet to be ascertained pending finalization of development plans.

• The purchase will be funded by proceeds from the rights issue of warrants amounting to RM10.5m, internal funds and bank borrowings with the breakdown to be determined.

• The purchase consideration of RM80m will be paid as such: - The first 5% or RM4m by the sale and purchase agreement (SPA) date. - The second 5% or RM4m within 6 months from the SPA date - The balance of RM72m by the 7th month after the SPA date

Comments

• HCKBSB is 30% owned by PKNS and 70% owned by Binary Binajaya Sdn Bhd, which in turn is 70% owned by HCK Capital. As such, HCK Capital’s effective ownership in HCKBSB stands at 49%.
• We are positive on the deal as it could contribute to the group in the long term. The land is surrounded by residential, commercial and industrial developments with landmarks such as The Star Avenue Lifestyle Mall, HELP University, HELP International School and Skypark Subang Airport.
• However, gearing and interest cost are expected to increase in the short term due to borrowings to fund upcoming property trading, investments and development projects. However, gearing then will be reduced upon delivery of The Duo project by end-2019.

Valuation & Recommendation

• Forecasts maintained – We are keeping our forecasts intact pending details of its development plan.

• Maintain HOLD call with a target price of RM1.24 based 30% on its realizable net asset value (RNAV)/share of RM1.78.

• Risks: a) Prolonged slowdown in the property sector; b) Higher labour and material costs; c) Execution risk to deliver projects.

Source: JF Apex Securities Research - 7 Dec 2017