Cochrane in the bag for Boustead

Boustead Holdings Bhd (Nov 7, RM5)
Maintain buy with a lower target price of RM6.90 on lower crude palm oil prices: Boustead is acquiring 12.84 acres of the Cochrane freehold land in Kuala Lumpur from Lembaga Tabung Angkatan Tentera (LTAT) for RM106.7 million.

This is after deducting costs of RM8.3 million on behalf of LTAT to relocate the occupants of the government quarters, demolish the existing houses and to upgrade facilities for a sports school. Of the 12.84 acres, eight acres are for residential and the balance for commercial purposes. The transaction is slated for completion by end-2012.

This is is part of the 60-acre Cochrane site which will benefit from the presence of an MRT station. We think there will be subsequent land sales from LTAT to Boustead, taking into consideration that LTAT has sold land to Ikea, which will have a 50:50 joint venture with Boustead in a 1.2 million sq ft mall.

The purchase consideration of RM191 per sq ft (psf) appears cheap compared with other land in the vicinity, our scenario analysis assumption of RM300 psf and taking into account stronger pricing power once the MRT station is completed.

Given Boustead’s track record, we expect it 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 (SOP) value based on RM900 psf average selling price (ASP) (possibly higher with the 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. —  HwangDBS Vickers Research, Nov 7

This article first appeared in The Edge Financial Daily, on Nov 8, 2012.

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