HSL (FV RM1.99 - BUY) Corporate News Flash: Buys Land For New Township

Details on the land. The  275.5 acres  is part of a  piece of  leasehold land  in  Bandar Samariang Township in Kuching, Sarawak totaling  2,795 acres. Located in the rapidly expanding northern part of Kuching City and  a  20-minute drive from the city centre, Bandar Samariang is an established township with some 5,000 homes and an estimated population of 25,000. The lease on the land expires on 8 April 2098.  

Samariang Aman 3 on its way. With the acquisition, HSL’s landbank will swell to 890 acres. According to management, the land is  earmarked for a  mixed commercial and residential development  called  Samariang Aman 3,  which is  a  continuation of its Samariang Aman and Samariang Aman 2 developments. The proposed township will have about  1,500 landed residential homes comprising a mix of semi-detached, quadruplex and terrace houses, 2,000 units of affordable houses  and 40 units of commercial shophouses. Spanning a development period of 6 to 8 years, the project as a whole is valued at a GDV of RM700m. Its initial launch is expected to take place as soon as 2014,.

Likely to be  Internally funded. We believe the acquisition will be likely  be  funded through HSL’s RM183.7m cash pile as of Dec 2011, which translates into an appealing RM0.32/share.  With  zero  borrowings so far, the acquisition is unlikely to strain  the company’s books.

BUY. While we make no changes to our FY12 and FY13 forecasts at this juncture given that any contribution from the proposed Samariang Aman 3 project would likely come in only by FY14, we continue to like HSL’s strong execution track record of leveraging on its marine engineering expertise. Besides, the company is also  the best proxy to Sarawak’s  construction play.  Note that early this week, 2 South Korean companies  -Dongbu Metal and Asia Cement – made a commitment to invest a combined USD650m in  the  Samalaju Industrial Park in Bintulu. That said, we continue to expect more contracts to flow from  SCORE  as we  believe that there may be  a potential revival of infrastructure  projects in  this region in the run-up to  the  national polls. Hence, we maintain our BUY call, at an unchanged FV of RM1.99, pegged at 12x FY12 PER. 

Source: OSK188