Ho Hup Construction Company Bhd
(June 29, RM1.19)
Maintain buy with a target price (TP) of RM1.68: Ho Hup, via its 75%-owned subsidiary Ho Hup Ventures (KK) Sdn Bhd, has entered into a share sale agreement with Agro Padi Sdn Bhd to acquire a 70% stake in Golden Wave Sdn Bhd (GWSB) for RM30 million. The acquisition enables the group to gain ownership of a 5-acre (2.02ha) commercial leasehold land in Kota Kinabalu (KK), Sabah, which is positioned to be a mixed development at a potential gross development value of RM774 million. We are positive about this move as this is a continuation of its effort to replenish its land bank in order to further establish its position in property development, besides to sustain its property profits. 

We revised our financial year 2015/16 forecasts by -14%/-6.1%, respectively, to account for the cost and earnings impacts from this acquisition. Nevertheless, our TP increased to RM1.68 from RM1.60, following the revision in our property valuation.

GWSB is principally involved in the property development and management of a shopping mall, City Parade in KK. In May 2010, GWSB signed a joint-venture agreement with DBKK Holdings Sdn Bhd to construct a bus terminal and car parks at costs not exceeding the agreed land value of RM46.92 million, in exchange for the adjacent piece of commercial leasehold land. The title of the land shall be delivered to GWSB upon the completion of the bus terminal in June 2016, or in favour of DBKK for an immediate transfer. The construction of the bus terminal reached a stage of completion of approximately 19% as at April 2015.

We think the acquisition is relatively cheap, given that Ho Hup is paying RM30 million for land with an indicated market value of RM185 million as appraised by the valuer. The land is strategically situated in the prime area and centre of KK, surrounded by commercial properties and hotels, such as Sutera Harbour, Shangri-La Hotel, Pan Pacific Hotel and the Sutera Golf Course. — BIMB Securities Research, June 29

This article first appeared in The Edge Financial Daily, on June 30, 2015.