Stock Focus Brem buoyed by interest in Segambut land

by **Cals** Sat 11 Jan 2014, 01:26

Stock Focus Brem buoyed by interest in Segambut land

Business & Markets 2014

Written by Kamarul Anwar of theedgemalaysia.com

Friday, 10 January 2014 16:10

BREM HOLDING BHD finished 2013 with a bang. Its share price shot 46.4% over two days to its highest since the 1997/98 Asian financial crisis following talks that the niche property developer with tracts in Kuala Lumpur and Klang should be worth five times more.

While stock market data showed trading interest in the counter began picking up at end-November, the normally sleepy stock jumped 29.8% to RM1.96 on Dec 30. It went on to climb as much as 12.8% to hit RM2.21 intraday on Dec 31 before closing the year at RM2.

The gains over two days resulted in Brem’s market capitalisation rising RM82.42 million to RM336.4 million. The 27.71 million shares, which changed hands over the three market days last week, was 16.5% of the company’s share base.

Spurring interest was a Chinese news report that said Brem’s assets should be worth RM8.32 apiece, a figure the property developer denies having any input in, according to its reply to a stock exchange query on Dec 31.

At its RM1.92 close last Thursday, the stock was trading at 0.69 times its latest unaudited net tangible asset (NTA) of RM2.79 per share as at Sept 30, 2013. Just a month ago, the stock was trading at 0.43 times NTA using its RM1.193 close on Nov 28 — near the RM1.14 level it averaged at last year.

With prices at a 16-year high, is there further upside for Brem?

Based on the list of properties it included in its annual report for the financial year ended March 30, 2013 (FY2013), there may be an upside to its reported book value, analysts say.

“[Brem] could have not done revaluation exercises. Just look at the Mukim of Kapar land — it’s valued at only 4.3 sen per sq ft and Brem said it was acquired in 1994,” says one analyst, referring to the property developer’s 109.71-acre land in Kapar, Klang, that is only carried at RM204,000.

The company also has multiple tracts in Mukim of Batu, Kuala Lumpur, held under its 75%-owned subsidiary Harmony Property Sdn Bhd. It is unclear whether the plots are contiguous with each other but one of the tracts, PT 25794, is said to be already under development.

More importantly, the average net book value of the eight plots of freehold land covering 34.38 acres in total and located in the Segambut area appear undervalued at RM73.55 psf. By comparison, IJM Land Bhd and FCW Holdings Bhd recently bought four parcels of land in Segambut at RM280 psf.

Using back-of-the-envelope calculations, the tracts in Mukim of Batu alone could fetch another RM1.84 in net asset value for every Brem share.

To be sure, while the revised net asset value (RNAV) method is a common way of valuing a property developer, analysts say a discount is usually imputed to the RNAV before deriving its fair value.

“Usually, a small cap property developer should get a 30% to 40% discount to its RNAV,” says an analyst, who declined to be quoted because she does not actively track Brem.

Another analyst says it is common for property developers to trade below their net asset value. “It is even more apparent if a company just sits on its landbank and doesn’t develop the land, because it will not generate any value.”

Brem — the niche property developer behind the Bukit Prima Pelangi project in Segambut Dalam, which is adjacent to the affluent Mont Kiara township — is controlled by managing director Datuk Khoo Chai Kaa, who could not be immediately reached for comment.

Meanwhile, the company appears optimistic on its prospects.

“The group’s current construction order book, which will last us for another four years, is about RM260 million, of which the gross development value exceeds RM650 million. The directors are of the view that, with the increased construction and property development activities, the overall performance for the coming year is optimistic,” Brem chairman Datuk Abu Sujak Mahmud said in the company’s 2013 annual report, which was released on Sept 4 — ahead of the government’s recent cooling measures for the property sector.

This story first appeared in The Edge Malaysia Weekly Edition, on January 06 - January 12, 2014.