• Maintain NEUTRAL and SOP-based MYR3.75 TP, 3% downside with c.3% FY24F (Jul) yield. While we are upbeat on Scientex’s proposed acquisition of land in Selangor, we do not expect the new land to have any impact on its earnings over the next three years, at least. Hence, we maintain our TP as we also think the stock’s current valuation is fair – it is trading at 11x P/E, in line with its historical mean.

• Another day, another deal. Scientex has entered into a sale & purchase agreement with Metalplex Plantation to purchase 826 acres of land in Kuala Selangor for a purchase consideration of MYR335.7m. The company plans to develop the land into a mixed-property project. It plans to fund the proposed acquisition via a combination of internal funds and bank borrowings. Scientex’s net gearing was at 0.14x as at end-Oct 2023.

• Reasonable price tag. The purchase consideration of MYR335.7m translates to a price of MYR9/sq ft, which we think is reasonable. This is in view of the size of the land as well as its location, which is not within the central part of Selangor. The price tag is also lower than that of Scientex’s past land acquisitions in Selangor, which have ranged MYR17-19/sq ft for land parcels spanning 167-251 acres in size.

• Strengthening its foothold in Selangor. Currently, Scientex’s presence in the property sector in Selangor is still small vs what it owns in the southern region of West Malaysia, ie Johor and Melaka. In Selangor, it only has developments in Rawang, Kundang Jaya, Cheras, and Jenjarom with a combined size of 663 acres. Therefore, the proposed acquisition – if completed – would more than double its current presence in Selangor to c.1,450 acres. Although no guidance on the future development was given, we estimate the GDV of this acquisition to be MYR2.5bn, assuming a price tag of MYR300k/unit. Hence, we are positive on the news, as the proposed acquisition of this land would further boost Scientex’s earnings base in Selangor, with greater economies of scale achieved – given the robust demand for affordable houses.

• However, we make no changes to FY24-26F earnings as the completion of this deal is expected to only happen in 1HCY25 while the actual GDV of this project remains uncertain.

• Our unchanged TP of MYR3.75 includes a 0% ESG discount/premium, as Scientex’s ESG score is on par with the country median. We believe Scientex is fairly valued, as it is trading in line with its historical mean of 11x. Upside risks include an increase in the demand for affordable homes. The opposite of this would constitute downside risks.

Source: RHB Research - 11 Mar 2024