Scientex has proposed to acquire a parcel of freehold land measuring 708.5 acres in Seberang Perai Selatan, Pulau Pinang, for a total cash consideration of RM462.5mn. We are positive on the proposed acquisition as it marks the establishment of the group’s third affordable township in Pulau Pinang. However, considering the recent surge in share prices and the limited potential for further upside in the nearterm, we have downgraded the stock to SELL while maintaining our target price of RM4.30 per share, based on SOP valuation.

Acquiring 708.5 Acres of Freehold Land in Seberang Perai, Pulau Pinang

Scientex announced that its wholly owned subsidiary, Scientex (Skudai) Sdn Bhd has inked a sales and purchase agreement with Land Capacity Sdn Bhd for the acquisition of 708.5 acres (~30.9mn sf.) of freehold land in Seberang Perai, Pulau Pinang for RM462.5mn. The proposed acquisition is anticipated to be completed by 1HCY25.

Marks the 3rd Township Development in Penang

We are confident that the acquisition of this land will enhance Scientex's footprint in the Southern Region, marking the establishment of its third affordable township in Pulau Pinang. The parcels of lands are strategically located within a 5.5km radius from Sungai Jawi town and 10km from Nibong Tebal town, offering convenient access to various healthcare, retail, and recreational facilities. These include Econsave Jawi, C-mart Nibong Tebal, Bukit Jawi Golf Resort and Sungai Bakap Hospital. Additionally, the location is close to Universiti Sains Malaysia Engineering Campus and Batu Kawan Industrial Park, approximately 12km and 17km away, respectively. In terms of connectivity, the land is only 6km away from Plaza Tol Jawi. Please refer to Appendix 1 for the location of the land.

Land Cost Fairly Valued

Scientex’s land acquisition in Seberang Perai Utara back in 2021 was transacted at RM16.5/sf, while Tambun Indah's previous transaction in 2019 was priced at RM14.35/s.f. The current land cost of RM462.5mn or RM14.99/sf, falls within the range of these precedent transactions. Although the actual Gross Development Value (GDV) of the project is yet to be ascertained, we reckon the potential GDV to be around RM3.1bn, based on historical projects in the Seberang Perai Utara. (Assumptions of excluding 10% of land size could be utilised for infrastructure and assign a GDV value of RM4.9mn/acre - Appendix 2). The acquisition price represents approximately 14.8% of our projected GDV value, which is below the threshold of 20%.

Potential Impact

No change to our FY24-26 earnings forecasts for now, pending the disclosure of exact GDV and total development costs. The acquisition will be funded via a combination of internal funds and bank borrowings. Scientex’s net gearing stood at 0.1x as of 31 Jan 2024. Assuming a 50:50 ratio, we project that Scientex’s net gearing will rise from 0.1x to 0.2x, remaining healthy following the completion of the land acquisition.

Valuation

Maintain Scientex’s target price at RM4.30/share, based on SOP’s valuation. Scientex’s share price has appreciated by 13.6% since we upgraded the stock from Hold to Buy on 27 March. Considering the limited potential for further upside, we are downgrading the stock from Buy to SELL and believe that the stock is currently fully valued.

Source: TA Research - 27 May 2024