Scientex has proposed to acquire 14 parcels of freehold land measuring 350.3 acres in Pulai, Johor Bahru, for a total cash consideration of RM381.4mn. We are positive on the proposed acquisition as it marks the establishment of the group’s thirteenth affordable township in Johor (fourth development in Pulai) after the recent acquisition in Muar. However, due to the limited potential for further upside in near-term as share price has surged 25.6% in the past 6-month, we maintain Sell on the stock with an unchanged target price of RM4.30/share, based on SOP valuation.

Acquiring 350.3 Acres of Freehold Land in Pulai, Johor Bahru

Scientex announced that its wholly owned subsidiary, Scientex Quatari Sdn Bhd has inked a sales and purchase agreement (SPA) with Lee Pineapple Company (Pte) Limited for the acquisition of 350.3 acres (~15.3mn sf.) of freehold land in Pulai, Johor Bahru for RM381.4mn. The proposed acquisition is anticipated to be completed by 1HCY25.

Marks the 4th Development in Pulai and 13th in Southern Region

We are positive about the news, as the acquisition will replenish Scientex’s total landbank in Pulai, fuelling future earnings growth. The acquired lands are adjacent to its existing developments, Taman Pulai Mutiara, Taman Pulai Mutiara 2, and Taman Pulai Duta. In terms of accessibility, the lands are located 18km away from the Johor Bahru city centre via the Johor Baru-Senai Expressway (Jalan Skudai), followed by the Skudai-Pontian Highway and Jalan Kangkar Pulai, covering a total distance of approximately 33km. As of now, Scientex has achieved a 90% take-up rate for the units launched in Pulai.

Please Refer to Appendix 1 for the Location of the Land.

Land Cost Fairly Valued

In comparison, the acquisition price (RM25.0/sf) for the new Pulai land is at 19.0% premium to its previous land (RM21.0/sf) bought in Sep-20 and 32.9% premium to the latest 3 precedent transactions in Pulai. However, according to online sources, plantations lands in Pulai are currently selling at an average price of RM32-34/sf. As such, we believe the acquisition price, which is at a discount to market price, is fair given the huge land size. For the time being, there is no Gross Development Value (GDV) guided by the management as the acquisition is still at the preliminary stage. However, we believe the GDV will align with that of the existing Pulai developments (Appendix 2). As such, we reckon the potential GDV to be around RM2.2bn. (Based on the assumption that 10% of the land size will be utilised for infrastructure with a GDV value of RM7.1mn/acre). The acquisition price represents approximately 17.0% of our projected GDV value, which is below the threshold of 20%.

Potential Impact

No change to our earnings forecasts at this juncture. Scientex’s net gearing stood at 0.1x for FY25. Assuming the acquisition will be funded via an equal combination of internal funds and bank borrowings, we project that Scientex’s net gearing will rise from 0.14x to 0.18x in FY25, remaining healthy following the completion of the land acquisition.

Valuation

Maintain Sell with an unchanged target price of RM4.30/share, based on SOP’s valuation.

Source: TA Research - 11 Jun 2024