• Scientex Berhad (Scientex) announced that it has entered into a conditional Sale and Purchase Agreement with Land Capacity Sdn Bhd for the proposed acquisition of 708.477 acres of freehold land at Seberang Perai Selatan, Penang for a total purchase consideration of RM462.5mn.

• We are positive about this acquisition as it increases the group’s landbank to 9,924 acres. This significantly expands its portfolio of developable properties and therefore enhances the company's earnings visibility by ensuring a steady pipeline of projects.

• Additionally, the evaluated land price is deemed fair and reasonable, considering the strategic significance of its location within Penang's vibrant city centre.

• No change to our earnings estimates pending GDV guidance from management.

• We maintain a HOLD recommendation on Scientex with an unchanged TP of RM4.15. Our valuation is derived from a Sum of Parts (SOP) methodology.

Seberang Perai Landbank Acquisition

Scientex, through its subsidiary Scientex (Skudai) Sdn Bhd, has proposed to acquire a freehold land in Seberang Perai Selatan, Penang, for a total purchase consideration of RM462.5mn. This acquisition covers an extensive area of approximately 708.477 acres and involves purchasing the land from Land Capacity Sdn Bhd. No land title endorsed for this land and the transaction will be conducted on an "en-bloc" basis, meaning the entire parcel will be acquired as a single unit. Besides, this land will be funded through a combination of internally generated funds and bank borrowings. The land is strategically located 17km from Batu Kawan Industrial Park and 6 km from Plaza Tol Jawi, within a 10km radius of Nibong Tebal Town, and approximately 5.5km from Sungai Jawi Town. Additionally, it is in close proximity to Bukit Jawi Golf Resort and Universiti Sains Malaysia Engineering Campus.

Landbank Expansion for 50,000 Affordable Homes Target

The lands are expected to be developed into a mixed-property development. However, management has yet to ascertain the total gross development value (GDV) of the lands and its future contributions. Management expects that the acquisition is expected to be completed by 1HCY2025.

Acquisition Cost at RM14.99/Sqft

We view the deal positively as it aligns with the group's strategic aim to expand its property development presence in Penang. Our analysis indicates the land cost is at RM14.99/sqft, in which we consider it fair, given Penang's status as a bustling city centre. This land acquisition represents a 10% discount from the purchase price of RM16.50/sqft for the 343 acres of land in North Seberang Perai, which was acquired in April 2021d.

Through this land acquisition, Scientex is well-positioned to contribute to the urban development of the city while also meeting the growing demand for affordable housing in this thriving metropolitan area. Besides, with Scientex's net gearing at 0.1x as of 1HFY24, we are confident in their ability to finance this acquisition successfully.

No Change to Earnings Estimate

We make no change in earnings forecasts pending GDV guidance from management.

Reiterate HOLD at TP of RM4.15

Maintain a HOLD recommendation on Scientex with an unchanged TP of RM4.15. Our valuation is derived from SOP valuation. Overall, Scientex business prospect is to be driven by i) organic expansion and M&A activities for potential long-term growth, ii) strong position as an affordable housing developer, and iii) high commitment to sustainability and the environment in their plastic product offerings.

Source: BIMB Securities Research - 27 May 2024