Boustead 'hold', Pavilion REIT 'neutral' Choo Bee 'sell'

  • Business
  • Thursday, 31 Dec 2015

Boustead Holdings Bhd

By Hong Leong Investment Bank Research


Target price: RM4.07

BOUSTEAD Holdings has proposed to sell its 30% stake in Jendela Hikmat Sdn Bhd (JHSB) to Cascara Sdn Bhd, which currently owns a 40% stake in JHSB, for a total consideration of RM180mil.

At the same time, Lembaga Tabung Angkatan Tentera is also selling its 30% in JHSB to Cascara. Post-disposals, Cascara will own 100% of JHSB.

JHSB is principally involved in property development and owns five parcels of land, measuring 577.58 acres. Three parcels of the land are located in Bukit Raja, Selangor, one parcel in Klang and the remaining parcel is in Kuching. The company has been loss making for the past three years.

The disposal is deemed to be fair as its sale consideration represents a premium of about RM90mil or 100.14% to the effective net assets of JHSB.

It also allows Boustead to realise its investment in its loss-making JHSB. Boustead will recognise a net gain on disposal of about RM194.46mil (net of taxation and estimated expenses), which translates into a net gain of 18.80 sen per share.

The proceeds will be used for working capital.

The disposal is expected to be completed in the third quarter of 2016 and this will result in a one-off contribution to 2016 earnings.

Pavilion Real Estate Investment Trust (REIT)

By MIDF Research


Target price: RM1.53

PAVILION REIT has entered into a sale and purchase agreement with The Intermark Sdn Bhd for the acquisition of Intermark Mall together with 367 designated car parking bays in Jalan Tun Razak, Kuala Lumpur, for a total cash consideration of RM160mil.

Pavilion REIT intends to fund the acquisition fully by debt. The proposed acquisition is expected to be completed by the first quarter of 2016.

Intermark Mall is part of an integrated mixed-use development known as The Intermark, which also comprises two corporate office towers and a hotel.

Intermark Mall has total net lettable area (NLA) of 225,014 sq ft with an occupancy rate of 74%.

Although the estimated property yield (net property income/asset value) of 6.1% is lower than Pavilion REIT’s current property yield of 6.5%, MIDF Research deems it as fair.

It believes there is potential for Pavilion REIT to increase the occupancy rate, given Pavilion REIT’s expertise in managing malls. The purchase price of RM160mil is also below its net book value of RM227mil.

The proposed acquisition is expected to increase the gearing of Pavilion REIT marginally to 19% from 16%, which is still below the gearing limit of 50% as prescribed by guidelines on REIT.

Choo Bee Metal Industries Bhd

By Affin Hwang Capital

Sell (Downgrade)

Target price: RM0.97

AFFIN Hwang Capital gathers that the average selling price for Choo Bee’s manufacturing products (steel pipes) averaged at RM2,150 per tonne from a high of RM2,400 per tonne in 2014.

Given the persistent oversupply conditions, the average selling price is expected to remain soft at current level or even weaker in the first half of 2016.

Close to 60% of the group’s revenue is driven by its trading business, which are mainly construction steel products. Thus, Choo Bee’s revenue is tied to construction activities as well as demand for properties.

While construction activities are expected to remain buoyant, demand for properties is anticipated to remain soft in the first half of 2016.

“We have lowered our financial year 2015 until 2017 estimate for earnings per share by 34%-43% after factoring a 4%-8% cut in our average selling price assumptions,” it said.

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