A&M Realty's unexpected gold mine

Focus MALAYSIA WEEKLY ISSUE 058

THE WEEK OF JANUARY 11, 2014 – JANUARY 17, 2014

mainstream

Carey Island land to deliver windfall

FOR more than two decades, property developer A&M Realty Bhd has been sitting on a 775.2ha parcel on remote Carey Island in Jugra, Sleangor.  The land, purchased by the company in 1990, had been left idle with no development.

Now, the property has become a gold mine with the completion of the Carey Island access interchange of the South Klang Valley Expressway (SKVE) expected in 2015, and A&M stands to reap a windfall.

Plans are afoot to undertake a RM10 bil (GDV) integrated property development know as Amverton Cove, comprising a golf course, homestead, bungalows, service apartments, hotels and them parks.

The land had been held by A&M founder and controlling shareholder Datuk Ng Thian Hock, before he sold 60% of his stake in Profail Sdn Bhd, which holds the property, to A&M in 1990.

Profail Padu, incorporated on Jan 17, 1989, has total assets of RM20.86 mil as of Dec 31, 2012.  It reported a lower net profit of RM1.77 mil for the financial year ended Dec 31, 2012 compared with RM2.15 mil the previous year.

A&M’s net asset value has always been higher than its share price.

“There are many companies with land banks that don’t reflect their current value; so many gems in old companies.  But take note that the accounting standards don’t allow the revaluation of a land bank into their books if it’s held for development,” says an accountant.

Ng has been reported as saying the Carey Island land was purchased more than 30 years ago for less than RM1 psf.  Ng, at the time a Selangor state executive councillor and state assemblyman, is believed to have acquired the land for a song and sold it to A&M at a much higher price several years later.

This probably explains why the company was worth RM1.70 per share when it was listed in 1995.  A&M undertook a bonus issue and share-split exercise in 2007, which resulted in an ex-date share price of 43 sen per share.

News of the proposed RM10 bil integrated property development has excited shareholders, causing the share price to reach a year’s high of RM1.26 on July 22, 2013 from a low of 46 sen on Feb 7 last year.  However, the run-jp was unsustainable and the share price is lately hovering just above RM1.  The counter closed at RM1.03 on Jan 8.  As of Sept 30, 2013, A&M’s net asset value was RM1.47 per share.

According to news report then, the land was valued at more than RM50 psf or RM4.2 bil, valuing A&M at about RM11.50 per share.

But the valuation may be of the high side as the land is still classified as agricultural and will need to undergo lengthy approval processes for status conversion.  Its lease expires only in 2105.  According to an accountant, agricultural land can be re-valued as long as it is not classified for future conversion and development.

A&M’s Carey Island land has a net book value of RM1.23 mil, significantly below the current value.  For instance, KSL Holdings Bhd paid Rm156.5 mil or RM8 psf in 2009 to acquire 178.4ha of freehold land on the Blackwater Estate, about 8KM from Carey Island.  According to KSL management, the land has a current market value of RM35 psf.

However, Permodalan Nasional Bhd (PNB), which held a 5.8% stake in A&M in 2009, may not be excited by the prospects of the company, as it ceased to be a substantial shareholder at the end of 2011.

That said, things may be changing, as A&M shareholders may be in for an unexpected boost once the Carey Island access interchange is ready next year.

“The completion of the Carey Island interchange will boost the value of properties in the surrounding areas, as accessibility will be greatly enhanced.  The SKVE, which connects Carey Island to Puchong, will help expedite housing development in the nearby townships and will inevitably lead to a spillover effect in property demand on Carey Island,” says an analyst.

For example, Kumpulan Hartanah Selangor Bhd plans to develop an integrated township on a 478.4ha parcel on Pulau Indah, Selangor, with an estimated GDV of between RM6 bil and RM8 bil.  This development is on the east of Pulau Indah, neighbouring Carey Island.  It is reported that the first phase of the project is slated for completion this year and the land is worth about RM1 mil per acre or RM23 psf.

The analyst adds A&M is a beneficiary of the rising trend of suburban living with its Amverton Cove project, which is able to provide spacious and higher-end properties at attractive prices.

“A&M’s low entry cost of less than RM1 psf will enable it to earn superior margins compared with the average 15% to 20% net profit margin enjoyed by property-development companies,” the analyst says.

A&M’s RM10 bil flagship development, Amverton Cove, will be built over at least 15 years.  Its maiden project, the Amverton Cove Golf & Island Resort, is already in operation.

The resort is said to be 20 minutes from Klang via the Kesas Highway and 30 minutes from Subang and Puchong via SKVE, which was completed last year.

The focus for Ng, who with his family controls 71.56% of A&M, will be on building the resort and hotel business.  Also, in the pipeline is the launch of 50 homesteads on 0.4ha each.

The houses will be priced at around RM2.8 mil per unit, implying a property price of RM64 psf.

A&M also has an 8ha plot in Bukit Kemuning, Shah Alam, 72ha in Morib, Selangor and 1.2ha in Mont’ Kiara.  All its recent projects carry the Amverton brand.

It is expected to launch 20 units of bungalows worth RM50-60 mil as well as 700 units of high-rise apartments with a GDV of RM315 mil this year, in Amverton Park in Bukit Kemuning.

A&M has another high-rise project in Mont’ Kiara called Amverton Rise in the pipeline but with no timeline.

The company is expected to see a significant growth in earnings on the back of planned launches.  A&M’s current unbilled sales stand at RM45 mil.

For the nine months ended Sept 30, 2013, its net profit was higher at RM19.33 mil compared with RM17.05 mil a year earlier, though revenue fell to RM96.39 mil from RM101.13 mil.

Positioned for more land buys

A&M is one of the few established property companies sitting on a huge land bank, whose value is waiting to be unlocked by property infrastructure.  It is also one that has a relatively good cash position and little debt.

With cash and cash equivalents of RM84.4 mil as of Sept 30, 2013, the company is in prime position to acquire more land.

Based on an estimated net gearing of 0.5 times, it would be able to raise some RM340 mil via borrowings.  The company has a negligible debt of RM66,000 in total borrowings as of Sept 30, 2013.  FocusM