This article first appeared in The Edge Financial Daily on December 8, 2017

HCK Capital Group Bhd
(Dec 7, RM1.23)
Maintain hold with a target price of RM1.24: HCK Bestari Sdn Bhd (HCKBSB), a joint venture company between HCK Capital Bhd and Perbadanan Kemajuan Negeri Selangor (PKNS), has proposed to purchase a 40,470 sq m vacant land along Jalan Zuhal U5/179 in Seksyen U5, Shah Alam for RM80 million cash from PKNS.

The land is planned for a mixed development comprising residential and commercial properties but total development costs and gross development value (GDV) are yet to be ascertained pending finalisation of development plans.

The purchase will be funded by proceeds from the rights issue of warrants amounting to RM10.5 million, internal funds and bank borrowings with the breakdown to be determined.

The purchase consideration of RM80 million will be paid as follows: The first 5% or RM4 million by the sale and purchase agreement (SPA) date; the second 5% or RM4 million within six months from the SPA date; and the balance of RM72 million by the seventh month after the SPA date.

HCKBSB is 30% owned by PKNS and 70% owned by Binary Binajaya Sdn Bhd, which in turn is 70% owned by HCK Capital. As such, HCK Capital’s effective ownership in HCKBSB stands at 49%.

We are positive about the deal as it could contribute to the group in the long term. The land is surrounded by residential, commercial and industrial developments with landmarks such as The Star Avenue Lifestyle Mall, HELP University, HELP International School and Skypark Subang Airport.

However, gearing and interest cost are expected to increase in the short term due to borrowings to fund upcoming property trading, investments and development projects.

However, gearing then will be reduced upon delivery of The Duo project by end-2019. — JF Apex Securities, Dec 7