Positive on Glomac land buy

GLOMAC has entered into a sale and purchase agreement with Lee Chin Cheng Dengkil Oil Palm Plantations Sdn Bhd, to purchase a piece of agricultural land in Sepang, Selangor, measuring 191.75 acres, for RM66.8mil or RM8 per sq ft (psf).

The purchase will be financed via internally generated funds and borrowings.

Glomac intends to develop a mix residential development on the land.

Given the land size of about 200 acres, we believe this development is likely to replicate its existing townships like Bandar Saujana Utama (1,070 acres) in Sungai Buloh and Saujana Rawang (345 acres). The development will provide affordable housing.

Assuming land efficiency ratio is of 70% and there are 15 units terrace houses per acre as well as an average selling price of RM350,000 per unit, we estimate the township to potentially yield a gross development value (GDV) of RM700mil.

There are no similar land deals transacted within the area recently for comparison.

Referring to iProperty.com, the acquisition price at RM8 psf appeared to be on the high side if we compare it with the current asking prices of RM4 to RM9 psf for agricultural land in Sepang.

Nevertheless, if we compare the total land cost of RM66.8mil against the total estimated GDV of RM700mil, the land cost would account for 9.5% of total estimated GDV, which we deem is fair.

Glomac's balance sheet is healthy and with a net cash of RM31mil as at January, it should provide financial flexibility for the acquisition. Hence, we do not expect the land acquisition to reduce the group's ability to payout dividend in the future.

Given the rising property prices and land scarcity in first-tier locations in the Klang Valley, we expect property demand to be decentralised from first-tier locations to areas like Cyberjaya, Kajang, Puchong and Seri Kembangan.

As such, we are positive on Glomac's move to expand its landbank in Sepang. In 2012, the group has made two land purchases with estimated GDV replenishment of RM1.5bil.

There is no change to our financial year 2012 and 2013 earnings projections. However, we raise our financial year 2014 earnings by 2.9% as we expect the progress billing from this project to begin then.

Given the change in future earnings and cashflow projections, we raise our discounted free cashflow to equity valuation higher to RM1.10 per share from RM1.08 per share previously, based on an unchanged discount rate of 16%.

By The Star