PETALING JAYA: Scientex Bhd
’s recent proposed purchase of a parcel of freehold land in Mukim Batang Berjuntai seems positive, as the acquisition allows the company to expand its footprint and build affordable housing in the northern part of Selangor.
The acquisition will increase its net debt and net gearing from RM515mil and 0.15 times as at end-October 2023 to RM851mil and 0.24 times, respectively, but still highly manageable, Kenanga Research said.
TA Research made no changes to its financial year 2024-2026 earnings forecasts for now, pending exact gross development value (GDV) and total development cost being disclosed.
However, it reckons the potential GDV could be around RM4bil.
This is based on its historical projects in the central region, on the assumption that excluding 10% of land size could be utilised for infrastructure and assign a GDV value of RM5mil per acre.
The acquisition price represents about 8.21% of its projected GDV value, which is below the threshold of 20%.
The acquisition will be funded via a combination of internal funds and bank borrowings. It expects Scientex’s balance sheet will remain healthy following completion of the land acquisition.
TA Research maintains Scientex’s target price at RM4.07 a share, based on 15 times 2024 manufacturing earnings and 11 times 2024 property earnings.
It upgraded the stock to “hold’’ from “sell” due to the recent decline in share prices, which triggered more upside.
Kenanga Research maintains that the contribution from the new project on the land is unlikely to come in within its forecast period.
However, it raised its target price by 3% to RM3.75 a share from RM3.63 a share as the Batang Berjuntai land increased its valuation by RM179mil, based on a 50% discount to its potential re-valued net asset value.
It maintains its valuation basis of 12 times FY24 price-earnings ratio (PER) for its packaging business, at a premium to sector’s average forward PER of 10 times to reflect its size, being one of the largest players in the region.
The deal is expected to be completed in the first half of 2025 and it intends to build a mixed property development on the land located between Ijok and Bestari Jaya.
The land is in close proximity to its existing projects such as Scientex Kundang Jaya (25km) and Scientex Rawang (36km), allowing it to tap into its existing resources.
