Analysts neutral on Scientex’s acquisition of freehold land in Kundang
KUALA LUMPUR: Scientex Bhd’s (Scientex) acquisition of approximately 673,718 square metres of freehold land in Rawang, Selangor, garnered ‘neutral’ views from analysts as they expect minimal contributions from the acquisition in the near term.
In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) noted that Scientex via Scientex Park (M) Sdn Bhd (a wholly-owned subsidiary) has entered into two SPAs with; Swan Lake City Sdn Bhd (Land 1) for three parcels of freehold land in Kundang of 150 acres (ac) for RM111.2 million and Fair City Sdn Bhd (Land 2) for two parcels of freehold land in Kundang of 16ac for RM12.1 million, both implying a price of RM17 per square feet (psf).
It said, the land is slated for mixed property development, but further details such as total gross development value (GDV), development cost, commencement and completion dates are too preliminary to ascertain.
Both lands are adjoining and strategically located with access to three major highways, namely LATAR Highway, Guthrie Highway and North-South Highway via the Rawang South Interchange.
The acquisition will be funded by internally generated funds or bank borrowings, and is expected to be completed in the first half of the financial year 2020 (1HFY20).
“We were not overly surprised by Scientex’s land banking as the Group does from time to time pursue land acquisitions.
“Furthermore, we believe it may have been opportunistic as pricing is decent at RM17 psf compared with Scientex’s previous acquisition in nearby Rawang for RM30 psf (in 2017).
“That said, we are neutral on the acquisition and do not expect significant impact to earnings in the near term,” it said.
It noted that based on its assumptions of affordable residential units and a mixed development township, price per unit of RM500k on 14 units per acre, it projected a potential GDV of RM1.2 billion, with land cost to GDV percentage of 11 per cent which it deemed as decent.
“However, note that land cost could increase on conversion premiums and re-zoning.
As project details are still pending finalisation, land cost to GDV may change subject to the residential to commercial mix and pricing strategies,” Kenanga Research added.
On its outlook, the research team said, Scientex’s plastic manufacturing arm is focused on ramping up utilisation, targeting above 70 per cent over the next few years, mostly from its BOPP plant and Arizona plant in the US which would mostly contribute from FY19 onwards.
“Scientex’s growth is premised on gradual improvement in utilisation rate for the manufacturing segment, and fullyear contribution from KHPI in FY19-20, whilst backed by its stable property segment,” it added.
As such, Kenanga Research maintained its ‘ market perform’ rating on the stock.