Highlight Momentum building up at GOB

by **Cals** Tue 02 Sep 2014, 09:14

Highlight Momentum building up at GOB

Business & Markets 2014

Written by Wei Lynn Tang of theedgemalaysia.com

Tuesday, 02 September 2014 08:46

KUALA LUMPUR: Momentum is seen to be building up at Global Oriental Bhd (GOB), a property developer deemed to have ties with tycoons Tan Sri Desmond Lim and Tan Sri Ta Kin Yan.

GOB executive director Wee Beng Aun, whom The Edge Financial Daily spoke to last week, said the firm will develop 106 acres (43ha) in Batu Kawan, Penang in the immediate term with an estimated gross development value (GDV) of RM662 million. In addition, a joint development (JV) with Lembaga Getah Malaysia (LGM) in Ampang, Kuala Lumpur, with a GDV of RM1.2 billion, will also kick off next year.

In Batu Kawan, Wee said GOB, formerly Equine Capital Bhd, started with a total of about 460 acres. “One hundred acres were developed with the units fully sold, while the balance 365 acres have a total expected GDV of about RM1.7 billion.”

For the next phase of 106 acres, the firm is targeting to obtain approval from the Penang authorities by the end of the year so that it can launch the units next year.

Increasing activities in the Batu Kawan project, where GOB had acquired the land long ago at low prices, could help attract interest to the company.

In an earlier note, RHB Research analyst Loong Kok Wen had said that current market value for land parcels in Batu Kawan has reached RM45 to RM55 per sq ft (psf).

Based on that, GOB’s land in Penang is worth some RM700 million at least. That’s 80% higher than the firm’s market capitalisation of RM234.2 million and net debt of RM155.3 million put together, indicating that the stock is undervalued. GOB closed last Friday at RM1.03.

“GOB is an attractive alternative Penang mainland play, and we strongly believe that news of an encouraging take-up rate upon the launch of [Phase 5 in] Batu Kawan will spur the rerating of the stock,” Loong noted in April.

Apart from Batu Kawan, in the Klang Valley, GOB has a total available land bank of 98 acres with a potential estimated GDV of RM2.93 billion.

This includes 66 acres in Taman Equine in Seri Kembangan (its flagship development) worth about RM1.52 billion in GDV, six acres in Jalan Ampang via the joint development agreement with LGM worth about RM1.2 billion, and the 26 acres of land in Sungai Long that GOB purchased earlier from Malton Bhd that has an estimated GDV of RM200 million.

Wee noted that the JV with LGM is significant as it will be GOB’s first project in the city centre.

“We have just gotten the initial planning approval from DBKL (Kuala Lumpur City Hall), and we will [next] submit the building plan approval. The project is targeting a soft launch sometime in the first quarter next year,” he said, adding that contribution from this project will be reflected in its financial year ending March 31, 2016 (FY16).

In the meantime, GOB has two projects planned for launch by year-end worth RM401 million, consisting of Equine Villa Heights (bungalows) and EQ City (shop offices and retail space hypermarket), both in Taman Equine. According to Wee, GOB’s unbilled sales currently stands at about RM400 million — mostly from Taman Equine and da:men mixed developments in USJ, Subang Jaya.

On land bank acquisitions, Wee said, “We are always looking for more land, through JVs as well as outright purchases. But our focus at this moment is mainly within the Klang Valley.”

He acknowleged that GOB’s paid-up capital of RM227 million was relatively small in the market, while land banking costs have become expensive. “As you know, land prices have gone up… The land we bought here [Taman Equine] was about RM20 psf, and today it costs about RM180 psf, but our paid-up capital has not been increased.”

To beef up the firm’s coffers, GOB shareholders had approved the rights issue exercise at the extraordinary general meeting last Tuesday, which will raise RM113.7 million in fresh proceeds. Half of the proceeds, or RM58.7 million, will be used to repay GOB’s borrowings and bring down its gearing from 0.76 times now to about 0.4 times, said Wee.

Investors had been anticipating GOB to undertake corporate exercises involving Lim and Ta, but none of such a nature has happened.

Wee used to head the construction division of Lim’s Malton, which has had some land transactions with GOB. Meanwhile, Ta’s son Wee Dher has been GOB executive director since end of 2012. Apart from that, there is no apparent shareholding connections in GOB linking to Lim, Malton or Ta.

According to GOB’s annual report, Othman Mohammed, an executive director, is the largest shareholder with indirect holdings of 12.05% as at June 30, 2014. Meanwhile, the top 30 shareholders comprising individuals and fund houses hold about 42% of GOB.

It is also worth noting that GOB has also ventured into the consumer retail and food and beverage (F&B) to diversify its revenue stream.

GOB had on April 1 completed the purchase of 65% in Perwira Nadi Trading Sdn Bhd (PNT) for RM50 million. PNT is involved in trading and distribution of premium brands of houseware and related products such as Correlle and CorningWare, which are currently sold in Parkson and Sogo department stores.

“We need to look out for more markets [to penetrate] and new lines of kitchenware to introduce into the market,” Wee said, adding that the group is also considering opening its own specialty stores in the future.

PNT, which has a turnover of about RM50 million in its latest financial year, is able to rake in double-digit in pre-tax margins, Wee noted.

On F&B, Wee said GOB plans to roll-out six more outlets in the next two to three years, in line with its own da:men retail development. It currently has six outlets in the Klang Valley, including Grand Harbour restaurants in Mid Valley Megamall and Fahrenheit 88, Kyo-ei Tokyo Ramen and Grandmama’s in Pavilion.

“For the next three years, property will still be our major focus contributing 70% to our revenue. But we are projecting retail and F&B to contribute up to 30% then [from 6% in FY14],” Wee said.

“The property cycle is cyclical, thus we are looking into some ‘balancing’ in terms of bringing in different kinds of income,” he explained, citing that the F&B market is rather resilient.

Based on its FY14 (ended March) net profit of RM38.4 million, GOB trades at a price-earnings ratio of 6.1 times.

This article first appeared in The Edge Financial Daily, on September 2, 2014.