Scientex has proposed to acquire 3 parcels of freehold land spanning 528.5 acres in Paya Rumput, Melaka for a total cash consideration of RM333.8mn. We view this proposed acquisition favourably as it marks the sixth affordable housing township in Melaka, following the group’s largest development in Bandar Jasin. Given that the housing project in Melaka has achieved a take-up rate of 81.0%, we believe this land acquisition presents a significant opportunity for the group to expand its footprint in the Southern Region, particularly in Melaka. We maintain our Buy recommendation for Scientex, with an unchanged target price of RM5.48/share, based on SOP valuation.

Acquiring 528.5 Acres of Freehold Land in Paya Rumpt, Melaka

Scientex announced that its indirect wholly owned subsidiary, Scientex Heights Sdn Bhd has signed a sales and purchase agreement with Genting Plantation Holdings Bhd’s subsidiaries, namely Genting Plantations (WM) Sdn Bhd and Genting Property Sdn Bhd to acquire 528.5 acres (~23.0mn sf.) of freehold land in Paya Rumput, Melaka for RM333.8mn. The proposed acquisition is expected to be completed by 2H25.

6th Affordable Housing Development in Melaka

To date, Scientex’s developments in Melaka have achieved an 81% take-up rate. We believe this land acquisition comes at an opportune time for replenishing Scientex’s existing land bank in Melaka. The newly acquired lands are at close proximity to its current projects, with driving distance of approximately 15/20/36mins to Scientex Heights, Durian Tunggal and Bandar Jasin, respectively (see Appendix 1).

In terms of accessibility, the land is situated just 14km away from Melaka City and is well connected to major highways such as the Alor Gajah-Melaka Tengah-Jasin Highway (AMJ Highway), the Sungai Udang-Paya Rumput-Ayer Keroh Highway (SPA Highway) and North-South Expressway (NSE). This will provide easy access from various parts of Melaka. Additionally, the land is located within a c.30km radius of key commercial and industrial zones in Melaka, including the Alor Gajah Industrial Estate, Hicom Pegoh Industrial Park, Stadium Hang Jebat and Pusat Akuatik Hang Jebat, which are strategically cater for living and business (Appendix 2).

Land Cost is Fair

In comparison, the acquisition price of RM14.5/sf for the new Paya Rumput land is higher than the average price of RM7.63/sf the company paid for its recent 3 land purchases in Melaka (Table 1). However, according to online sources, freehold plantation lands in Paya Rumput are currently trading at an average price of RM11-16/sf. Given that the acquisition price falls within this prevailing market range, we consider the purchase price is fair as the land is at close proximity to Melaka city, in contrast to Scientex’s existing developments in Jasin and Durian Tunggal.

As the acquisition is still in the preliminary stage, there is no Gross Development Value (GDV) guidance available at this point. However, based on our estimates, we reckon an estimated GDV value of RM1.7bn, which aligns with the previous development in Durian Tungal at an approximate value of RM3-4mn/sf (assuming 5% of the land will be used for infrastructure). The acquisition price would account for roughly 19.5% of our projected GDV value, or below the 20% threshold.

Potential Impact

There is no change to our earnings forecasts at this juncture. Scientex’s net gearing stood at 0.17x as of FY24. Assuming the acquisition is funded via a combination of 80% bank borrowings and 20% internal funds, we project that Scientex’s net gearing would hover at 0.12x in FY25, well below management’s target of 0.5x.

Valuation

Maintain Buy with an unchanged target price of RM5.48/share, based on SOP valuation.

Source: TA Research - 27 Jan 2025