PETALING JAYA: Engineering and construction firm Kimlun Corp Bhd’s recent deal to buy two plots of freehold commercial land near Johor Baru for RM40.5mil cash is seen as positive, says RHB Research.
The two plots are sized 11.12 acres in total (translating to RM83.61 per sq ft) and located within the Bandar Seri Alam township, which is situated 20km from the city centre of Johor Baru.
On Tuesday, Kimlun told Bursa Malaysia that its indirectly owned subsidiary Kii Melodia was buying the land from Seri Alam Properties (the Bandar Seri Alam township developer).
The development details have yet to be finalised, and the proposed deal is expected to be completed by the third quarter of 2021.
RHB Research said the purchase price is attractive, although no valuation was carried out on the two commercial plots.
“This is based on the asking price of RM145.00 psf for a parcel of commercial land near Bandar Seri Alam, as detailed in the announcement on Bursa Malaysia.”
The research unit said assuming that 60% of the RM40.5mil will be funded via bank borrowings, this would raise Kimlun’s gearing ratio by 0.03 times based on the audited financial year 2019 (FY19) numbers.
RHB Research also noted that Kimlun had bought land in Johor for RM82.1mil for development purposes in 2019.
Another purchase of a 49% stake in Bayu Damai Equity (RM40mil) and two land parcels (valued at RM36mil) in Johor remains ongoing and are likely to fully hit Kimlun’s books by end-FY20.
RHB Research is maintaining its buy call on Kimlun with a target price of 93 sen, premised on a more sanguine outlook, with near-term replenishment opportunities possibly coming from the recently signed Johor Baru-Singapore Rapid Transit System project, the North-South Corridor and the Jurong Region Line.
The research unit said the valuation remains attractive at 7.8 times the FY21 forecast earnings per share, which is a 17% discount to its small-cap construction peers’ 2021 forecast price-to-earnings ratio.
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