Emerging property play

KUALA LUMPUR: Several counters seen as emerging property plays have drawn interests as investors were found scouting for stocks they believed could be good bargains with strong upside potential.

Last week, such emerging property play like Focal Aims Holdings Bhd, Salcon Bhd, FCW Holdings Bhd as well as little known Y&G Corp Bhd attracted renewed interest after making corporate announcements over the past week.

“Compared to the big caps, the small caps are starting from a low base, and their initial growth could be explosive,” said a dealer.

Among them, Focal Aims garnered the most attention. The stock leapfrogged 141% last week to close at RM2.19 last Friday after announcing a takeover by Eco World Development Holdings Sdn Bhd and Tan Sri Liew Kee Sin’s son Tian Xiong.

“Focal Aims is seen as Liew’s next property venture as he exits SP Setia. But at this price (RM2.19), the premium for Liew may appear too steep” said the dealer, referring to the company’s net asset value of RM1.26 as well as the takeover offer of RM1.40 per share.

However, others point to Focal Aims’ undervalued, 1,053.9 acres (426.5ha) of freehold land in Plentong, Johor Baru, which is slated for golf resort, residential, commercial and industrial developments.

Acquired in 1994, the land was carried in Focal Aims’ balance sheet at a net book value of RM302.64 million or only RM6.60 per sq ft as at Sept 30, 2012, according to the company’s annual report published in January this year. Meanwhile, Focal Aims’ net borrowing was minimal at RM43.7 million as at June 30, 2013, against shareholders’ fund of RM318.7 million.

The stock hit an intraday high of RM2.49 last Friday before closing at RM2.19, giving it a market capitalisation of RM412.9 million.

“There could potentially be more corporate exercises at Focal Aims involving the injection of landbank by Eco World, which will continue to generate news flow for the company,” said the dealer.

In another development, Salcon, whose executive director and substantial shareholder Datuk Eddy Leong also sits on the board of Eco World, saw a surge in trading volume of the company’ shares following news that the company would be divesting its water assets in China for RM518.3 million cash. The company also announced that it would develop a project in Johor Baru in a joint venture (JV) with Eco World, said to be Liew’s new property flagship.

However, probably because of the disappointment that Liew did not launch a takeover of Salcon as was widely speculated but instead, Focus Aims, Salcon’s stock failed to excite the market last week, except its trading volume had risen significantly.

On the water assets deal, after netting off minority interests and liabilities, the net cash proceeds worked out to RM284 million or 47.29 sen per Salcon share. Salcon’s stock ended at 65 sen last Friday, giving the company a market capitalisation of RM390.3 million.  

“This makes Salcon a cash-rich company and on top of that, it has the JV project with Eco World in Johor, with a GDV of RM1 billion,” said a market observer, who is also expecting a special dividend from the cash proceeds.

Meanwhile, Tan Sri Robert Tan’s FCW has seen renewed buying interest last week. Its share price gained 8.9% last Friday to RM1.23 (intraday high was RM1.42), after it announced last Thursday that it would develop property projects on its long-held landbank in Segambut, jointly with IJM Land Bhd.

According to the announcement, IJM Land and FCW have set up a 50:50 JV to undertake a mixed development project on four parcels of land in Geran Mukim Batu for a GDV of RM1.5 billion.  

The JV will acquire the 15.41 acre (623ha) piece of land from FCW for RM187.97 million, which worked out to RM280 psf. It is worth noting that the land is valued close to FCW’s enterprise value of about RM207 million, being its market capitalisation of RM223.6 million less its net cash of RM17 million as at June 30, 2013.

Another small cap, little-known Y&G, was also on the radar after announcing the acquisition of 266.8 acres (107.9ha) of agricultural land near Kota Kemuning from Malaysian Agriculture Research and Development Institute for RM100 million cash, said to be a discount of 58.7% to the market value of RM242 million ascribed by independent valuers, Messrs Jones Lang Wootton. The land is expected to generate a GDV of more than RM1 billion, said Y&G.

Y&G also announced that its major shareholder had given full undertaking to subscribe for a 2-for-10 rights issue, with free warrants, at RM1 per share. The stock rose 11.9% last Friday to close at 80 sen, giving it a market capitalisation of RM123 million.

There will also be a placement exercise to place out 10% of its shares to new investors.

This article first appeared in The Edge Financial Daily, on September 23, 2013.


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