Warrants Update: Tambun-WA a cheaper proxy for property firm

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This article first appeared in The Edge Malaysia Weekly, on June 27 - July 3, 2016.

TAMBUN Indah Land Bhd’s warrant, Tambun-WA, appears to be a cheaper proxy for investors who are looking to ride the prospects of the Butterworth-based property developer.

Tambun-WA carries a strike price of 60 sen and a one-for-one conversion ratio. The five-year warrant will expire on May 30, 2017. It was issued as a free detachable warrant under a rights issue exercise in 2012.

Rebounding from a 52-week low of 48 sen last September, the derivative had almost doubled to 94 sen in March. It is currently trading at a discount of 3.2% to the mother share, which closed at RM1.41 last Tuesday.

A check on Bloomberg shows that Tambun Indah has a consensus target price of RM1.59, giving it a 12.7% upside potential.

Assuming zero premium to the under­lying stock, Tambun-WA would theoretically be worth 99 sen, if the mother share hits the target price. This is a 29.4% upside to the warrant’s closing price of 76.5 sen last Tuesday.

BIMB Securities Research is one of three research houses with a “buy” call and a target price of RM1.78 on Tambun Indah, while Hong Leong Investment Bank Research has a “hold” recommendation.

In a report dated May 19, BIMB Securities Research says Tambun Indah is the second largest landbank owner in mainland Penang after Eco World Development Group Bhd.

The research firm remains optimistic about the upcoming RM27 billion Penang Transport Master Plan, which is expected to improve the traffic flow between Penang island and the mainland.

Tambun Indah still has about 400 acres of landbank to be developed. As at March this year, the group enjoyed strong take-up rates averaging 77% for its ongoing projects, which have a total gross development value of RM1.67 billion and unbilled sales of RM354.4 million.

Of the total unbilled sales, Pearl City, the flagship development project of Tambun Indah, has unrecognised sales of 62%. The balance of unbilled sales coming from the company’s other projects should provide it with earnings visibility for at least the next three years.