• Maintain NEUTRAL and MYR0.52 TP, with 9% expected total return. Fiamma announced its wholly-owned subsidiary has entered into an agreement to dispose 18 parcels of leasehold land. A MYR12m one-off net gain is expected, with the proceeds targeted to meet working capital needs. Pending completion of the deal, we keep our core earnings forecasts and TP. Besides monetising its landbank, this deal is also positive in terms of derisking its exposure to the soft domestic property sector.
• The deal. The SPA, entered between wholly-owned subsidiary (Oaksvilla SB) and Amber Land Berhad for a total cash consideration of MYR39.2m, is expected to be completed by April. Acquired in Jun 2013, the said agriculture land, which is located in Bukit Tinggi, Johor, was approved for mixed development. It has a combined size of 34.7 hectares with a book value of MYR16.8m and is currently vacant.
• Financial impact. The completion of the deal could see Fiamma book a onetime gain of approximate MYR12m for FY20F (Sep). Impact to core net profit is expected to be minimal – c.MYR1m (3-4% of FY20F core net profit) – assuming the company channels the cash proceeds towards the repayment of bank borrowings (cost of borrowing is assumed at 5% pa). Hence, we are keeping our forecasts pending completion of the deal.
• Our take. We see this as a positive development as it monetises the company’s land assets; improves cash flow and balance sheet strength; and reduces its exposure in the property segment, which has capped our recommendation towards the company.
• On its remaining landbank, particularly the two parcels located at Jalan Yap Kwan Seng and Jalan Sungai Besi, we understand that the company is open to options, including an outright disposal. Further monetisation of land assets would be seen as positive in de-risking the company’s exposure in the domestic property sector.
• Risks to our call. Upside risks are better-than-expected margins for the trading & services unit, and faster-than-expected sales of completed and ongoing property projects. Downside risk includes an extended softness in economic growth, which may negatively impact consumer spending.

Source: RHB Securities Research - 10 Jan 2020