Buys Land in Petaling Jaya Selatan

Ibraco has entered into a sale and purchase agreement with Milan Sanctuary S/B and Jurapat S/B for the acquisition of 4 parcels of leasehold land in Petaling Jaya Selatan, totaling 15,811.66 square metres (sqm) for RM37.4mn (or RM220.55psf). The proposed acquisition is expected to be completed by 3Q18.

The Land is Slated for Mixed Commercial Development

Located in Bandar Petaling Jaya Selatan and fronting onto Baru Pantai Highway, the land is approved for a mixed commercial development. According to the announcement, the land is granted with Development Order (DO) by Majlis Bandaraya Petaling Jaya dated 11 November 2011 for mixed commercial development. However, the group intends to apply for variation/new DO in due course. As such, the gross development value (GDV) and gross development costs for the proposed development to be undertaken on this land has yet to be determined, as the project development plan is still at a preliminary stage.

Based on the initial plan, the land will be developed into a mixed development, comprising serviced apartments and retail units. We understand that the land comes with an approved plot ratio of 4.0 times. Assuming an efficiency ratio of 75% and average selling price of RM600-700psf, the land could potentially generate a GDV of RM306mn – RM357mn.

Acquisition Cost deemed Reasonable

As far as the acquisition cost is concerned, we note there are no similar land deals for direct comparison. Meanwhile, commercial land in Petaling Jaya Selatan is currently asking for RM250psf, based on iProperty.com. Therefore, we believe the acquisition cost of RM220.55psf is fair. Furthermore, based on our GDV estimation, the land cost to GDV ratio is 11-12%, which we deem reasonable.

Net Gearing to Rise to 0.51x

Based on the group’s net debt level of RM154mn or net gearing ratio of 0.40x as at Jun-17, this land acquisition would increase Ibraco’s net gearing to approximately 0.51x, assuming the purchase consideration will be satisfied wholly in cash from internally generated funds of 30% and the remaining 70% via bank borrowings. We believe there is no imminent need of fresh cash for this acquisition as management has indicated that it is comfortable with a net gearing level of below 0.6x.

Neutral on the Acquisition

We consider this as a timely acquisition to replenish the group’s land bank in the Klang Valley. To recap, the group’s first and only project outside its home base in Sarawak, namely, the Continew KL (GDV: RM465mn), has recorded a satisfactory take up rate of 48% since its official launch in Feb-17. Nevertheless, we are neutral on this acquisition as we understand that the project is still in a very preliminary stage and immediate launch is unlikely.

Forecast

No change to our FY17-19 earnings forecasts, pending more details on the development.

Valuation

We maintain our target price of RM0.94/share, based on unchanged 9x CY18 EPS. Reiterate Hold with a total return of 11.1%.

Source: TA Research - 12 Sept 2017