This article first appeared in The Edge Financial Daily on July 19, 2018

Poh Huat Resources Holdings Bhd  
(July 18, RM1.30)
Maintain buy with a target price (TP) of RM1.64: Poh Huat Resources Holdings Bhd announced that it had entered into a sales and purchase agreement with JSNJ Investment Pty Ltd, Australia, the owner and developer of a 3,212 square meter (sq m) detached warehouse cum office-showroom in Cranbourne West, Victoria, for a total consideration of A$4.95 million (RM14.77 million) or about A$1,540 per sq m.

The warehouse cum office-showroom comprises a 2,912 sq m single-storey high clear span warehouse with a 300 sq m office with retail/showroom facilities at the front of the property (“subject property”).

The purchase consideration was based on a willing buyer, willing seller basis after taking into consideration the asking price of similar properties within the vicinity vis-à-vis the size and location of the subject property.

We think the purchase price of A$1,540 per sq m for the subject property looks reasonable as compared with other recent transacted prices of A$1,571 per sq m for a warehouse cum office building located on Crompton Way, Dandenong South, and A$1,654 per sq m for a warehouse cum office building located on Logis Boulevard, Dandenong South.

The group intends to hold the subject property as investment property for rental to third parties, as the management is of the view that it has good potential in terms of capital appreciation and rental yield. Poh Huat’s first warehouse in Australia, which is located in South Dandenong, was acquired back in 2016 for a total consideration of A$4.25 million (or A$1,361 per sq m) for a 3,122 sq m warehouse cum office-showroom.

The first warehouse has enjoyed value appreciation based on recent per sq m transacted prices of similar sized properties in South Dandenong of A$1,571 to A$1,654.

Currently, management is under negotiation for the leasing of the first warehouse to one of its existing customers for an annual net lease payment of between A$320,000 and A$340,000.

This works out to be a potential net yield of about 7.5% to 8%. Thus, we think the new acquisition could also potentially contribute positively to Poh Huat’s future earnings. The acquisition will likely be funded by internally generated funds (cash balances stood at RM104 million as at April 30, 2018).

No changes were made to our earnings forecasts. We maintain our “buy” rating on the stock with a TP of RM1.64. — Affin Hwang Capital Research, July 18