KUALA LUMPUR: Boustead Holdings Bhd's (BHB) deal to buy 12.84 acres of freehold land in Jalan Cochrane, Kuala Lumpur, for RM106.7mil from the Malaysian Armed Forces Superannuation Fund (LTAT) is positive for the former, say research analysts.
The deal is a related party transaction, as LTAT is the major shareholder of Boustead with a 59.7% stake.
About eight acres of the land is categorised for residential usage, with the balance for commercial.
In a report, HwangDBS Vickers Research said this was part of the 60-acre site in Jalan Cochrane, which would benefit from the presence of a My Rapid Transit (MRT) station.
“We think there will be subsequent land sales from LTAT to Boustead for this piece of land, taking into consideration that LTAT has sold land to Swedish home furnishings retailer Ikea, which will also have a 50:50 joint venture with Boustead in the 1.2 million sq ft mall,” said the research unit.
HwangDBS Vickers Research said the price of RM191 per sq ft appeared to be cheap when compared with other land within the vicinity, its own scenario analysis assumption of RM300 per sq ft and also the stronger pricing power once the MRT station was completed.
The research unit opined that given Boustead's track record, it could be expected to successfully replicate its flagship Mutiara Damansara township.
“Based on our scenario analysis, Jalan Cochrane could add 93 sen per share to our sum-of-parts value based on RM900 per sq ft average sales price (possibly higher with MRT) and eight times plot ratio, we are not adjusting our numbers now as the first official launch (offices and residential) may only happen in 2014,” said HwangDBS Vickers Research.
Hong Leong Investment Bank's (HLIB) research unit said the purchase price for the Jalan Cochrane land was believed to be fair as it was an asset injection by LTAT.
“Moreover, Boustead is LTAT's only flagship listed entity for property development.”
HLIB Research also said the scenario was an extension of a joint venture with the Ikano group (which owns Ikea) whereby Ikea would catalyse the development.
“Although there are concerns about oversupply in the office segment and a general slowdown in the property market, we believe an Ikea-anchored mall would act as an attraction for potential buyers and enhance the success rate of the whole development over the longer term.”
However, HLIB Research pointed out that it was premature to determine the impact of the deal, due to the lack of details on gross development value development period, concept and timing of property launches.
It was also noted that the deal would increase Boustead's gearing from 99.8% to 102.2%, but HLIB Research said this was sustainable given that most of the debt at the group level could be attributed to the high initial debt at Boustead Naval Shipyard and Boustead Heavy Industries Corp Bhd to initiate the contract to build the RM9bil offshore patrol vessels from the Royal Malaysian Navy.
By The Star