Scientex has proposed to acquire a parcel of freehold agricultural land in Kuala Selangor measuring 826.0 acres for a total cash consideration of RM335.7mn. We are upbeat on the proposed acquisition. Upgrade the stock to Hold with an unchanged TP of RM4.07/share, based on SOP valuation.

Acquiring 826 Acres of Freehold Land in Kuala Selangor

Scientex announced that its wholly owned subsidiary, Scientex Park (M) Sdn Bhd has entered into a sales and purchase agreement with Matalplex Plantation Sendirian Berhad to acquire a 826.0 acres (~35.98mn sf.) freehold agricultural land in Batang Berjuntai, Kuala Selangor for RM335.7mn. The proposed acquisition is expected to be completed in 1HCY25.

In Close Proximity to Scientex Kundang Jaya and Rawang

We gathered that the proposed land lies between Ijok town and Bestari town, with the renowned agrotourism destination (Selangor Fruit Valley) located just about 15km away (a 24-min drive). Meanwhile, according to Scientex, the site is in close proximity to Scientex’s existing developments in Kundang Jaya and Rawang, at distances of approximately 25km and 36km, respectively. We believe that the land acquisition would further bolster Scientex’s expansion efforts in the Central Region, marking the establishment of its fifth township in Selangor. Please refer to Appendix 1 for the location of the land.

Reasonable Land Cost

We believe the proposed acquisition price of RM335.7mn or RM9.33/sf. is reasonable, given the price falls below the recent transacted freehold land price in Bestari Jaya between RM33-35/sf. According to the announcement, the actual GDV of the project is yet to be ascertained. However, we reckon the potential GDV to be around RM4.0bn, based on its historical projects in the Central Region (Assumptions of excluding 10% of land size could be utilised for infrastructure and assign a GDV value of RM5mn/acre - Appendix 2). The acquisition price represents approximately 8.21% of our projected GDV value, which is below the threshold of 20%.

Impact

No change to our FY24-26 earnings forecasts for now, pending exact GDV and total development cost to be disclosed. The acquisition will be funded via a combination of internal funds and bank borrowings. With an estimated net gearing of 0.2x for FY24, we expect Scientex’s balance sheet will remain healthy post completion of the land acquisition.

Valuation

Maintain Scientex’s target price at RM4.07/share, based on 15x CY24 manufacturing earnings and 11x CY24 property earnings. We upgrade the stock to Hold from sell due to the recent decline in share prices, which triggered more upside.

Source: TA Research - 11 Mar 2024