Bukit Jalil project to lift Ho Hup

KUALA LUMPUR: As investors start favouring medium and small property counters for their attractive valuations, Ho Hup Construction Co Bhd is also picking up interest after the company received regulatory approval for its regularisation plan last week.

The company’s stock has risen 15% year-to-date, closing at 80 sen last Friday, but market observers expect the stock to show more upside as its current price is actually the same as the entry price of its second largest shareholder, Formis Holdings Bhd.

Formis had in June 2011 acquired 21 million shares or a 20.59% stake in Ho Hup from Datuk Vincent Lye at 80 sen per share, not long after Lye lost out in a bitter takeover fight against former managing director Datuk Low Tuck Choy.

Formis, where Ho Hup’s executive director Derek Wong is a substantial shareholder, now owns 21.66% in Ho Hup while Low’s family now holds 22.99%. Both Formis and Low have recently been slowly upping their stakes in Ho Hup.

At 80 sen, Ho Hup has a market capitalisation of RM81.6 million. Upon completion of its regularisation plan, its market capitalisation could theoretically expand by another RM119.32 million, to about RM201 million, after the rights issue of irredeemable convertible preference shares (ICPS) and the issue of redeemable convertible preference shares (RCPS) to creditors.

The rights issue of up to 102 million ICPS — attached with up to 51 million free warrants, will be carried out on a one-for-one basis, at 50 sen per ICPS — while up to 136.63 million RCPS valued at 50 sen each will be issued to unsecured creditors for debt settlement.

The current par value of Ho Hup shares of RM1 will be reduced to 50 sen, to free up credit for reducing the group’s accumulated losses.

Ho Hup’s total borrowings stood at RM10.71 million as at Dec 31, 2012 while its net total payables were RM158.76 million. The group had minimal cash of about RM4 million.

Ho Hup’s management once said that its liabilities were not of major concern, as its jewel asset — the 60 acres of land in Bukit Jalil could easily be worth over RM450 million.

The closest value benchmark is WCT Bhd’s acquisition of some 60 acres of land in nearby Taman OUG for RM450 million from the Eng Lian group late last year.

The potential development gains from Ho Hup’s 60-acre tract in Bukit Jalil could dwarf the company’s theoretical market capitalisation of about RM200 million upon completion of its regularisation plan, said market observers.

According to Ho Hup management, a couple of years ago the 60 acres were expected to produce a total gross development value (GDV) of at least RM4 billion. This figure is similar to WCT’s estimates for its OUG development, which is also over RM4 billion.

According to filings with Bursa Malaysia, Ho Hup said it will develop 10 acres on its own while a joint venture between the company and Malton Bhd will develop the remaining 50 acres. In return for injecting the 50 acres into the JV with Malton, Ho Hup will derive 18% of the project’s GDV as its share of the profit.

Assuming Ho Hup also earns a development margin of 18% from the first 10 acres, the total gains to Ho Hup based on the entire 60 acres’ conservative estimated GDV of RM4 billion would work out to be RM720 million.

“That’s more than three times Ho Hup’s theoretical market capitalisation of about RM200 million post-regularisation plan,” said a market observer, adding that the potential GDV could be higher than RM4 billion given the surge in property prices in Bukit Jalil.

It is learnt that Ho Hup and Malton are going to unveil the detailed development plans for the Bukit Jalil land in the coming months. This could spark further interest in Ho Hup on top of news of its impending exit from PN17, said market observers.

This article first appeared in The Edge Financial Daily, on May 20, 2013.


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