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• We re-iterate our BUY rating on Gamuda Bhd (Gamuda) – with unchanged fair value of RM3.90/share. Gamuda yesterday (March 10) announced that it had entered into an agreement with Sai Gon Thuong Tin Tan Thang (Secomreal) to purchase a 60% stake in Tan Thong Co for US$82 million (RM272.4 million). Group will finance the acquisition via borrowings or internally generated funds.
• Secomreal will retain a 30% stake in Tan Thang Co – with the balance 10% held by a local Vietnamese individual. Secomreal is a Vietnamese developer that has developed several high-end apartments in HCMC in recent years.
• Following this, Gamuda and its partners will jointly develop a township within an 82ha piece of land in Tan Phu – the fifth largest district in Ho Chin Minh City (HCMC).
• We take comfort that Tan Thong Co has already obtained necessary approvals to develop the land. Proposed development will cater to the mid to high-end segments – similar to Gamuda’s established Kota Kemuning as well as Valencia townships in Malaysia.
• The project (seven residential components) will be developed over seven years. Gross development value is estimated at RM6 billion with indicative margins of 20%-25%.
• Latest venture marks Gamuda’s second foray into Vietnam after Yenso Park in Hanoi. Gamuda remains upbeat on the Vietnamese property market. Vietnam has a young population base (60% below 35 years of age) amid an expanding middle-income group.
• More importantly, Gamuda is optimistic that this new project will be well received. First, Gamuda’s effective land cost is only US$168/sq m versus US$254/sq m - US$424/sq m for other pieces of land within the Tan Phu district. Second, Tan Thong Co’s land is the last piece of large development land in HCMC.
• Third, the project is strategically located within 9km from HCMC’s central business district – and 3km away from the airport. Fourth, indicative pricing for this development is US$1,000/sq m - US$2,000/sq m for landed units, and US$900/sq m- US$1,200/sq m for apartment units. This represents a steep 50%-64% discount compared to prices at Phu My Hung – the benchmark township in HCMC.
• Gamuda aims to launch its HCMC project by 2H 2010 – although full-impact on earnings will only be felt in FY12F. We maintain our earnings forecast for now. Key re-rating catalyst will emanate from new contract awards – with added kickers from its Vietnam property projects.
