Tambun has inked its acquisition of 209.5 acres of land adjacent toPearl City, which is the company’s main growth engine. We continue to see the potential for RNAV and GDV expansion, as new land parcels inBatu Kawan are already transacted at higher prices, and pricing for properties to be launched by new players is likely to set a new benchmark. Maintain BUY and MYR3.00 FV.

• SPA signed.Tambun Indah (Tambun) has signed a conditional sales and purchase agreement (SPA) with TPPT SB for the proposed acquisition of 209.54 acres of freehold land adjacent to the southern side of Tambun’s flagship Pearl City township, for a total purchaseconsideration of MYR150m. To recall, the company received the letter of acceptance of offer on 4 June, and now the land deal is officially sealed.
• Strong balance sheet enables debt leverage.The acquisition will be funded via MYR100m debt and MYR50m internal funds. Given Tambun’s net gearing of only 3% based on its latest balance sheet, the debt financing is estimated to increase the ratio to about 30% by 4Q, upon completion of the acquisition. The gearing level is in line with the industry average and manageable for Tambun considering its consistent cash flow coming from the township project.
• Potential RNAV and GDV expansion.We believe that Tambun is set to be the largest listed landbank owner in Penang mainland. The acquisition will likely boost the company’s remaining landbank in Pearl City to almost 800 acres, and its estimated GDV to about MYR4.4bn. We still see potential upside in total GDV as new players such as Eco World (ECW MK, NR) and IJM Land (IJMLD MK, BUY, FV: MYR4.15), which entered at higher land costs (MYR40 psf and MYR18.50 psf, respectively), may launch their products at higher selling prices in Simpang Ampat/Jawi by year-end. Land parcels for the proposed golf course and theme park in Batu Kawan that will likely be awarded at higher pricing are expected to spur another round of RNAV re-rating for Penang mainland players.
• Forecast. We see minimal impact on our FY14-15 earnings forecasts as we incorporate the incremental interest expense and fine-tune our margin assumptions slightly given the low blended average land cost of MYR16-17 psf.
• Reiterate BUY.Tambun is one of our sector picks. We maintain our BUY rating with a MYR3.00 FV, on par with its RNAV.

Source: RHB