We often read about newer developments with gross development value of RM1 billion and above these days. However, it is not often that we read about land purchase itself being over RM1 billion. Well, IOI Properties Group Bhd is buying 400 acres of land from its from chairman Tan Sri Lee Shin Cheng. It is paying for this RM1.58 billion purchase with cash and new shares. As per announced to Bursa Malaysia, this piece of land has a combined gross development value of RM20 billion. This meant that the land cost to GDV is around 7.9 percent which is still low by any standard.
The purchase involved two separate pieces of land. Based on the valuation report from Jones Lang Wootton (JLW), the two pieces of lands are worth RM2.06 billion and RM440.10 million respectively. In other words, the current purchase price should be considered acceptable even if it’s considered a related party transaction. The landbanks are located within IOI City Resort, fronting the entrance of Putrajaya and next to the South Klang Valley Expressway. It is also adjacent to the current development of IOI Properties. In other words, it will allow the current development to be extended further. The advantage to this is that it will also gain from all the infrastructure already put in place thus far.
Property development takes time. Thus, even if the GDV is stated as RM20 billion, it is likely to be realised over a long number of years. Besides, with issuance of new shares, it meant that the earnings per share of IOI Properties would be diluted. Net gearing ratio would rise from current 0.07 to 0.1 times. This is considered low among the many listed developers. After this purchase, IOI Resort City would have 449.7 acres of land, up from it’s current 50 acres. I do not own any IOI Properties Group Bhd’s shares currently but I think if you are taking a long term view and would like to buy a property stock, it’s worth taking a look. According to Hong Leong Investment Bank Bhd analyst Jason Tan, the target price (TP) for IOI Properties shares have been increased from RM2.27 to RM2.77. This meant there is still a potential for some price upsides. Note, buy only if you understand what you are buying, not when someone says, buy. Perhaps we may also buy its future project instead if shares are not to our liking. Happy deciding.
written on 21 Oct 2015
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