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Saturday, February 7, 2009

Property firm takeover targets

With IOI Properties Bhd being taken private by its parent company IOI Corp Bhd, other property players are also looking like promising targets for major shareholders to increase their stakes or even be taken over.

Cash-rich property companies, whose share prices are trading at very low valuations due to the weak market, may turn out to be attractive takeover targets.

Among them are Glomac Bhd and Sunway City Bhd (SunCity). Sunway group when contacted by StarBiz, declined comment.

Analysts say despite uncertainties in property development, SunCity has a growing pool of assets which provide sustainable recurring income like the Sunway Pyramid Mall, Sunway Carnival Mall, Monash campus, Sunway Medical Centre and Sunway Hotel and Resort.

They expect the recurring income to account for about 60% of SunCity’s earnings before interest and taxation for the financial year ending June 30 (FY09) compared with just 34.8% in FY07.

SunCity posted net profit of RM45.12mil in the first quarter ended Sept 30 while its net asset per share was RM3.67. At the current price of RM1.60, it is trading at a steep 0.43 times price-to-book. However, it has RM534.97mil in cash and cash equivalents.

SunCity’s major shareholders are Sungei Way Corp Bhd with 27.86% and the Singapore government, 21.28%.

For Glomac, at its current price of 49.5 sen, it is trading at a steep discount of 0.27 times price-to-book. It posted net profit of RM7.72mil for the second quarter ended Oct 31 while its net assets per share was RM1.81, analysts say.

Glomac’s pipeline of niche projects include its commercial developments in Mutiara Damansara and the final phase of Plaza Kelana Jaya as well as its RM800mil mixed-development project, Glomac Damansara.

Its major shareholders are group executive chairman Tan Sri Mohamed Mansor Fateh Din with 24.12% stake and executive vice-chairman Loong Tuck Fong, 19.51%.

AmResearch in a recent report says Glomac’s share price, around 49 sen, was trading at a steep 67% discount to its estimated net-asset value of RM1.50 per share.

As at end-October, it had total unbilled sales of RM443mil or 1.4 times revenue for the financial year ended April 30, 2008, while its net gearing was healthy at 10%.

“Backed by its strong financials, we think that the balance sheet risk is low although earnings are expected to remain flat in FY10 (at RM31.9mil),” the research house says.

However, AmResearch says despite the steep value in Glomac, it does not see any visible catalysts to trigger a share price re-rating as the company might scale back its projects amid the economic slowdown.

When contacted, a Glomac spokesman said the company “is not looking at privatisation.”

CIMB Equities Research says although share prices of property companies have fallen sharply after a disastrous 2008, the fundamental outlook for the property sector remains poor.

As for the IOI group, IOI Corp has extended a voluntary general offer (VGO) to minority shareholders of IOI Prop at about 8 times price-to-earnings ratio in a cash-cum-share deal.

The offer for IOI Prop is RM2.598 per share to be satisfied by 33 sen cash plus 0.6 new IOI Corp shares.

TA Securities in a report on Thursday feels the offer is low compared with its price-to-earnings target of 9 times for IOI Prop, but would not face much of a challenge from minority shareholders.

However, it adds: “Despite cheap valuation, we believe IOI Corp could eventually privatise IOI Prop without much impediment from minority shareholders during an EGM as IOI Corp and its related companies jointly own 76% of IOI Prop.”

TA Securities feels that minority shareholders should take the deal to avoid future marketability issues of IOI Prop shares given that it would soon be delisted from the stock exchange.

The research house has upgraded its target price for IOI Prop to RM2.60 from RM2.50, in line with the proposed VGO.

By The Star (by Joseph Chin and Loong Tse Min)

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