PETALING JAYA: Signature International Bhd’s proposal to dispose of its Bandar Enstek land in Negri Sembilan is a positive move as it will help the company in terms of interest savings and future dividend payments.
The kitchen cabinet and wardrobe manufacturer had said the RM54.6mil in proceeds raised from the land disposal would be used to repay bank borrowings and as working capital to purchase raw material.
Signature on Monday announced that it had entered into three conditional sale and purchase agreements with Ace Logistic Sdn Bhd for the proposed disposal of three parcels of freehold land at Bandar Enstek, measuring a combined 1.25 million square feet, for a total cash consideration of RM54.6mil.
According to TA Research, the disposal would free up Signature’s non-core assets, noting the three parcels of land have been left vacant since taking possession in November 2016.
The exercise would bode well for interest savings and future dividend payments, the brokerage said.
TA Research maintained its “buy” call on Signature.
“We continue to like Signature for its strong brand name along with its strength to cope with any project that requires the supply of kitchen and wardrobe systems,” it said.
However, it cut its sum-of-parts valuation for Signature to RM1.12 per share from RM1.15 per share previously after revising the market value of the Bandar Enstek land to RM43.50 per square foot (psf) from RM50 psf previously.
“The disposal proceeds of RM54.6mil work out to RM43.50 psf, which is slightly below our estimate of RM50 psf,” TA Research said. In our rough calculation, the disposal would result in a disposal gain of RM12.1mil after deducting RM1.5mil related expenses,” it added.
Meanwhile, the repayment of bank borrowings was expected to generate interest savings of RM1.6mil per year, equivalent to 9.5% of estimated earnings for the financial year ending June 30, 2023.
In its exchange filing, Signature said it would allocate RM34.1mil from the total land disposal proceeds to repay bank borrowings, and RM18.9mil for working capital.
The land disposal is deemed as related party transactions as Ace Logistic is owned by Datuk Seri Chiau Beng Teik and family, who control Chin Hin Group Bhd. Chin Hin has a 31.2% stake in Signature.