Kenanga Research believes that Scientex is getting a fair deal from its latest proposed acquisition.
PETALING JAYA: Scientex Bhd
is getting a fair deal from its latest proposed acquisition of 350.3 acres freehold land in Pulai, Johor Baru for RM381.4mil, say analysts.
TA Research said in a report it has a positive view on the acquisition, which will replenish Scientex’s total landbank in Pulai, Johor, fuelling future earnings growth.
The acquired land is adjacent to the group’s existing developments, Taman Pulai Mutiara, Taman Pulai Mutiara 2 and Taman Pulai Duta, the research house said.
Describing the land as “fairly valued”, Kenanga Research said: “The acquisition price of RM25 per square foot (psf) for the new Pulai land is at a 19% premium to its previous land at RM21 psf bought in September 2020 and 32.9% premium to the latest three transactions in Pulai.”
According to online sources, plantation land in Pulai is currently selling at an average price of RM32 psf to RM34 psf.
“As such, we believe the acquisition price, which is at a discount to market prices, is fair given the huge size of the land,” it added.
For the time being, there is no gross development value (GDV) provided by the management as the acquisition is still at the preliminary stage.
However, TA Research believes that the GDV will align with that of the existing Pulai developments.
“As such, we reckon the potential GDV to be around RM2.2bil. This is based on the assumption that 10% of the land will be utilised for infrastructure with a GDV value of RM7.1mil per acre.
“The acquisition price also represents approximately 17% of our projected GDV value, which is below the threshold of 20%,” TA Research said.
The research house made no change to Scientex’s earnings forecasts.
The group’s net gearing stood at 0.1 times for the financial year 2025 (FY25).
“Assuming the acquisition will be funded via an equal combination of internal funds and bank borrowings, we project that Scientex’s net gearing will rise from 0.14 times to 0.18 times in FY25, remaining healthy following the completion of the land acquisition,” it added.
However, there is a limited potential for further upside in the near term as Scientex’s share price has surged 25.6% over the past six months.
TA Research has maintained a “sell” call on the stock with an unchanged target price at RM4.30 per share.
Meanwhile, Kenanga Research believes that Scientex is getting a fair deal from its latest proposed acquisition, judging from the asking prices for agricultural land in the surrounding areas that range from RM18 psf to RM25 psf.
For example, Mah Sing Group Bhd’s recent acquisition of 100 acres was at RM23 psf in the same area, and Eco World Development Group Bhd’s purchase of 240 acres was at RM43 per sq ft, which is closer to prices for established commercial areas and the city centre.
“Scientex’s acquisition will increase its net debt and net gearing from RM531mil and 0.15 times, respectively, as of end-January 2024, to RM912mil and 0.25 times, respectively, which is still manageable.”
The research house also raised the stock’s target price to RM3.95 from RM3.85 previously.
“We like Scientex for its competitiveness in the global plastic packaging industry given its size and low-cost structure and its strong foothold in the affordable-housing segment in Johor.
“However, we believe valuations have become rich after the recent run-up in its share price,” the research house said.
The possible upside to its call include a stronger and earlier recovery in the global economy, easing of input costs and lower mortgage rates improving affordability for its properties.
