Tambun Indah Land Bhd
(April 10, 81 sen)
Maintain buy with a higher target price (TP) of RM1.02 (previously 97 sen), with a 31% upside plus 6% yield: Tambun Indah Land announced on Tuesday that its 70%-owned subsidiary Mustiara Sdn Bhd received a letter of acceptance of offer from TPPT Sdn Bhd for the proposed acquisition of 209.54 acres (84.8ha) of freehold land for a total purchase consideration of RM131 million. We are positive on the acquisition as the market has been anticipating the company to replenish its land bank since a few years ago. The land, adjoining the southern side of Pearl City in Seberang Perai Selatan, Penang, was transacted at RM14.35 per sq ft, which is comparable to the land cost of RM14 to RM16 per sq ft in Pearl City.
Note that the balance 30% equity interest in Mustiara is held by Taufiq Ahmad @ Ahmad Mustapha Ghazali, a former non-independent non-executive director of the company.
We are upbeat with the acquisition as the new land should be an extension to Pearl City, which will allow the company to better plan the township going forward.
Unlike its bigger peers, which have acquired land bank aggressively over the last few years, Tambun Indah Land’s patience in its landbanking approach has paid off, as we think land is now cheaper given the sluggish property market conditions. At RM14 to RM15 per sq ft, the company should be able to maintain its gross profit margin of 30-40%, which is above industry average. Over the years, the company has accumulated a cash balance of RM175 million (balance sheet is in net cash). As such, it will fund the whole acquisition internally.
We conservatively estimate a gross development value (GDV) of RM1 billion for the new land, and we think there could be further upside over the longer term, based on the normal property price appreciation trend. This suggests an increase of almost 30% to its total GDV for its remaining projects. We expect more details on GDV and development period to be announced upon the signing of the sale and purchase agreement in two weeks. — RHB Research, April 10