Gadang has entered into a JV agreement with Perikatan Progresif Sdn Bhd (PPSB), the land owner of a parcel of 17.5 acres leasehold residential land located in Taman Putra Perdana, Puchong, to jointly undertake a development on the land. The land is intended for a residential development comprising town houses with an estimated GDV of RM160mn. PPSB, being the land owner, shall be entitled to 32% of the net development value or an entitlement sum of RM42.7mn, whichever lower. We understand that the project is targeted to be launched by end-2017 if building plans approval could be secured within the targeted timeframe. The project is expected to be completed within 42 months from the date the building plans approval is obtained.

Our View

We are neutral on the deal as we expect ordinary margin from the development project given the relatively high ratio of land cost to GDV. Nevertheless, we think that the developer may not need to incur significant costs on the development of external infrastructure outside the land boundary given that the surrounding infrastructure has been largely in place. We think the project will be well-received, considering Puchong is a matured township, and the area is easily accessible by ELITE Highway, and wellconnected to Cyberjaya and Putrajaya. Besides, 15% of PPSB’s entitlement will be paid in-kind via the contra of residential units within the development. This reduces the risk of unsold units in the development project.

Impact

We keep our earnings forecasts unchanged pending obtainment of building plans approval and further details on the development project.

Valuation

No change to our target price of RM1.37, based on unchanged 12x CY17 construction earnings, 8x CY17 property earnings, 12x CY17 utility earnings, and assigned value of oil palm plantation landbank of RM25k/ha. Maintain BUY call on the stock.

Source: TA Research - 12 Jan 2017