Affin’s land deal is affordable but pricey

KUALA LUMPUR (Aug 12): Besides the bearish market sentiment, the purchase of land in Tun Razak Exchange (TRX) at a record high transaction price has accelerated the fall in Affin Holdings Bhd’s share price, which hit a 3½-year low yesterday.

Analysts noted that the RM255 million land acquisition is affordable for the group’s banking arm, Affin Bank Bhd, but it is still a pricey deal.

Affin’s share price slipped to an intraday low of RM2.37 before it closed slightly higher at RM2.38, down five sen, or 2%, from the previous day’s closing. However, the trading volume was small at only 484,400 shares.

Affin, which is controlled by Lembaga Tabung Angkatan Tentera, announced on Monday that Affin Bank is buying land measuring 54,266 sq ft in TRX, a property development by debt-laden 1Malaysia Development Bhd (1MDB), for RM255 million cash.

The bank intends to build its new headquarters on the prime tract, which has a fair price pegged at RM261 million by an independent valuer, according to an announcement to Bursa Malaysia. However, the name of the independent valuer was not revealed.

The purchase price translates into RM4,699 per sq ft (psf) — a record high transaction price in Kuala Lumpur.

Hong Leong Investment Bank Research (HLIB Research) said the purchase consideration of RM255 million was only 0.4% of total assets while affordability was not an issue for the financial institution.

Even so, it noted the acquisition price was on the high side given its price on a psf basis.

According to HLIB Research, Affin’s purchase price of RM4,699 psf was higher than recent transactions within the vicinity.

HLIB Research pointed out that the recent land deals around the TRX land included Malaysian Resources Corp Bhd’s (MRCB) acquisition of the German embassy land at RM3,182 psf in April 2015. It was followed by Lembaga Tabung Haji’s (Tabung Haji) acquisition of land in TRX for RM2,780 psf and Mulia Group’s acquisition of land in TRX for RM4,490 psf in May 2015.

HLIB Research also made a price comparison of the price per gross floor area (GFA) among the land deals.

“When compared with price per GFA, RM309.67 is also higher than Tabung Haji’s transaction of RM264.94, albeit the Tabung Haji land has a lower plot ratio of 10.47 times,” it said.

HLIB Research pointed out that while the financial impact is limited, the high acquisition price could raise concerns among investors, especially amid the current low investor sentiment.

Meanwhile, TA Securities commented in its research note yesterday: “Financially, the acquisition is unlikely to have a significant impact on earnings. Imputing foregone interests, it is estimated to decrease earnings by only approximately 1% to 2%.”

“That said, the share price might be affected by the negative sentiment surrounding 1MDB-related transactions lately,” it added.

Affin’s share price has been drifting lower since April from RM2.97. The stock has declined 18%, or 52 sen, year to date.

This article first appeared in the digitaledge Daily on Aug 12, 2015. Subscribe here.