#Warrants Update* Land acquisition to boost Tambun Indah-WA

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THE acquisition of 209.5 acres in Simpang Ampat in Seberang Perai, will turn Tambun Indah Land Bhd into the largest landowner in Penang, boosting its profile as a major property player up north, while addressing its depleting landbank.

Some analysts see the land purchase as a catalyst for Tambun Indah’s shares, and in turn, its warrants.

At June 11's (Wednesday) closing price of RM1.43, Tambun Indah-WA was trading at a 1.46% discount to the underlying share, based on its exercise price of 60 sen each. The warrants, which expire on May 05, 2017, have a conversion ratio of one to one.

For those who see the potential in the property player, its warrants could offer a cheaper entry.

The land acquisition will boost Tambun Indah’s landbank by an estimated 40%. As a good proxy for Penang, the company will continue to capture the investment spillover from Batu Kawan, where many high-profile projects are taking shape, says RHB Research.

“The company will become the largest listed landowner in Penang, overtaking Global Oriental (with 350 acres), Malton (300 acres) and potentially Eco World (300 to 400 acres),” says the research house.  

It assigned a target price of RM3 to Tambun Indah, which is about 46% higher than its last-traded price of RM2.06 on June 11 (Wednesday). Should Tambun Indah’s shares climb to RM3 in the next 12 months, the warrant holders could potentially reap a 33% upside.

The price the developer paid for the land — about RM16.50 psf — is relatively lower than that in other transactions in Seberang Perai, of between RM40 and RM55 psf.

This will enable the company to maintain its 30% to 35% development margin, which is higher than the industry average of 25%.

However, given that Tambun Indah’s shares have nearly tripled in value in the past 18 months — from 70 sen to RM2.08 on June 06 — some analysts reckon that the stock may take a breather, before continuing its ascent.

Hong Leong Investment Bank thinks the development of the 209 acres will only begin in late 2020. This is because Tambun Indah still has 385 acres of undeveloped land in Pearl City. Thus, the new land will not contribute to the developer’s bottom line, until then.

In the first quarter ended March 31, 2014, Tambun Indah posted a profit before tax of RM35.3 million, on revenue of RM112 million.

This story first appeared in The Edge weekly edition of June 16-22, 2014.