KUALA LUMPUR: While big-cap property developers are forking out big bucks to purchase parcels of land on the fringes of the Klang Valley, a small company — Engtex Group Bhd — has also managed to wrestle a good deal for land in Puncak Alam, Kuala Selangor.
Engtex's 70% unit Tiara Best Sdn Bhd acquired two parcels of agriculture land in a public auction on Oct 17, measuring 182 acres (73.65ha), in Puncak Alam for RM31 million or RM3.90 per sq ft (psf).
The pricing is considered attractive although the land is currently zoned for agricultural use. Note that S P Setia Bhd recently coughed up RM13 psf for 673 acres of industrial land in Semenyih, while Mah Sing Group Bhd purchased 12.9 acres of industrial land at RM37.80 psf in Bukit Jelutong.
Engtex's property earnings are growing fast, compared to its wholesale and manufacturing business, with its mainstay in cement-lined pipes, valves, fittings, manhole covers and pillar hydrants. The latest acquisition marks the company's aspirations to strengthen its footing as a property developer.
In a filing with Bursa Malaysia last Monday, Engtex said it is planning to convert the 182-acre tract of agricultural land in Puncak Alam into industrial land, and develop it into an integrated industrial park with a gross development value (GDV) of RM166 million.
"Based on preliminary plans and subject to the approval of relevant authorities, Tiara Best plans to offer for sale industrial lots of various sizes within the industrial park," it said.
Subject to approvals, Engtex expects to commence development in 2Q12 and develop the land over two years. The land is currently planted with ageing oil palm trees with no erected buildings.
Engtex could not be contacted to provide further details.
In May, Engtex entered into an agreement with Liputan Canggih Sdn Bhd to acquire the two parcels of land in Puncak Alam for RM44.4 million or RM5.60 psf. However, the agreement was terminated on Oct 16, one day ahead of the public auction, as Liputan Canggih had failed to obtain the state's consent to transfer the land within the application period.
The termination of the original agreement turned out to be beneficial for Engtex as it ended up acquiring the land at auction at a 30% discount to the original price of RM44.4 million.
A property analyst with a local bank noted that the cost price for the Puncak Alam land was attractive as industrial land costs anywhere between RM10 and RM30 psf depending on the location.
However, the analyst noted that Engtex will need to convert the land into industrial land, which usually costs between 10% and 15% of the market value. Assuming the cost value of RM31 million, Engtex would need to fork out another RM4.65 million to convert the land, which comes up to an additional 59 sen per sq ft, increasing its land cost to about RM4.49 psf.
A property consultant added that the market price of industrial land in the area is RM30 psf. "It wound appear that Engtex has struck a good deal, even though we need to factor in the conversion price as well as roads and infrastructure that need to be constructed to access the area ... Engtex could probably see a net cost of RM20 psf, but it is still a good price in the market," he said.
Engtex diversified into property development in 2008 and launched its maiden Taman Tiaraputeri project, which consists of 76 units of semi-detached houses with a GDV of RM60 million. Engtex had bought the 17 parcels of land in Selayang for RM14.18 million or RM122 psf, but the properties were sold from RM300 psf. The project has been completed and vacant possession was handed to the owners early this year.
Engtex also launched Tiara Residence garden pool villas and an integrated mixed development called Emerald Avenue in Selayang with a combined GDV of RM300 million.
For FY10 ended Dec 31, Engtex's property division contributed RM8.73 million in operating profit while its wholesale and distribution division contributed RM25.51 million and manufacturing RM13.35 million. Group net profit amounted to RM33.86 million in FY10.
Coming into 1HFY11, Engtex's property division made a loss of RM639,000 for 1HFY11, on revenue of RM3.9 million due to completion of certain development projects and before the launch of new ones. Nonetheless, the latest acquisition of land should act as the catalyst for the resurgence in the property division's contribution.
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