Land acquisition

Yesterday, Scientex Berhad announced that its wholly-owned subsidiary, Scientex Quatari Sdn Bhd (SQSB) has entered into a sale and purchase agreement (SPA) with Dahlia Utama Sdn Bhd (DUSB) to acquire two parcels of land situated in Kulai, Johor with approximate area of 121.2 acres for a total cash consideration of RM123.6mn.

The Land

The average land cost for these two pieces of freehold lands, measuring 2.99 acres (RM5.1mn) and 118.20 acres (RM5.2mn), work out to RM40psf and RM23psf (see Table 2). This is higher than what the company paid for its Kulai land (RM13.5psf) in 2013 but within the current market price range between RM20psf and RM60psf. The land is surrounded by the Taman Aman Senai residences (north bound) Senai Highway (north-east bound), and Nort-South Highway (south bound).

Prospects for the Land

Management advised that the land is strategically located. The purchase will boost Scientex’s existing landbank in the area, especially given that the land is of close proximity to the company’s existing Senai and Pulai developments. This will allow the company to leverage on operational efficiencies and generate better margins through economies of scale.

Our View

Overall, we are positive on this announcement as this SPA is in line with the company’s long-term growth plan for the next eight to ten years. We are still expecting Scientex to launch RM580mn worth of projects for FY17.

Forecast

No change to our FY17 and FY18 earnings, pending finalization of the development plan and project GDV.

Recommendation

We maintain our SOP-valuation RM8.50/share for Scientex. We like Scientex for the ability to leverage on its existing operations for efficiencies, which would reflect positively on the company’s long-term earnings. Maintain Buy.

Source: TA Research - 29 Dec 2016