Tuesday, July 13, 2010

Fajarbaru Venturing More Into Property Development

Saw the following announcement on Fajarbaru Builder last night. Since I had blogged on Fajarbaru recently ( A Quick Look At Fajarbaru Builder ), I thought it's best that I make this update.

Fajarbaru's share sale agreement with Potential Region Sdn Bhd. ( see file attachment posted on Bursa website:
FBG - Potential Region Sdn Bhd (1).doc )

  • The Board of Directors of Fajarbaru Builder Group Berhad ("FBG" or "the Company") wishes to announce that the Company had on 12 July 2010 entered into a Share Sale Agreement ("the Agreement") with the following parties (“the Vendors) to acquire 348,255 ordinary shares of RM1.00 each representing 49.75% the issued and paid-up capital of Potential Region Sdn. Bhd. (Company No. 229098-H) (“PRSB”) for a total consideration of RM16,000,000.00 (Ringgit Malaysia Sixteen Million) only (“the said Consideration”) :

A 16 Million acquisition.

And this was highlighted on Star Business: Fajarbaru to buy Potential Region

As you can see from the newspaper, it really doesn't say anything much!

  • Tuesday July 13, 2010
    Fajarbaru to buy Potential Region

    KUALA LUMPUR: Fajarbaru Builder Group Bhd has signed a share sale agreement with three parties to acquire 348,255 ordinary shares of RM1 each representing 49.75% the issued and paid-up capital of Potential Region Sdn Bhd for RM16mil.

    In a filing with Bursa Malaysia, Fajarbaru said the parties were Datuk Chua Tiong Moon, Tan Hui Ngoh and Koh Koo Kee.

    “The proposed acquisition will allow the company to have full management and operational control over Potential Region,” it said. — Bernama

And if you read from the doc attached on Bursa website, it also doesn't say anything much!

For example, what exactly does Potential Region do? All Fajarbaru indicated was that Potential Region is a property development company. And obviously what kind of potential does it have (pun intended! :P )? What about Potenital Region's earnings track record? What kind of properties does Potential Region owns?


    PRSB was incorporated in Malaysia under the Companies Act, 1965, on 16 November 1991. The authorised capital of PRSB is RM5,000,000.00 divided into 5,000,000 ordinary shares of RM1.00 each, of which 700,000 ordinary shares of RM1.00 each have been issued and fully paid-up.

    The principal activity of PRSB is property development.


    The Proposed Acquisition will allow the Company to have full management and operational control over PRSB.

And incredibly in May 2010, Fajarbaru announced this: ACQUISITION OF INVESTMENT IN TEMASEK PERKASA SDN. BHD.

And the acquisition will cost Fajarbaru 15 million. Temasek Perkasa is also into property development. And like Potential Region, there is indication of the potential of Temasek Perkasa and neither does Fajarbaru provide to the investing public, the earnings track record of Temasek Perkasa.

Would you reckon that these are two dodgy acquisitions?

All we know is a whopping 31 million will be spent by Fajarbaru to purchase two property development companies. We don't even know what kind of properties these two property developers own.

Yes, I am truly disappointed with the lack of information.

Oh of course Fajarbaru could afford these two acquisitions since as per their last reported quarterly earnings, its cash balances totals more than 120 million, with no debts but surely if you are a minority shareholder, you would want to understand more about these two property developers Fajarbaru is acquiring.

And what's the implication of these two developments? Would we see Fajarbaru diversifying more into properties?


Update 8:15pm

Fajarbaru answered a query from Bursa..

  • 1. The net loss and net assets of Potential Region Sdn Bhd are as follows: Net Loss for the financial year ended 30 June 2009 : RM57,954. Net Asset as at 30 June 2009 : RM10,456,591
  • 9. Part C of Appendix 10B of LR1. (a) 192 Individual Lots within PD Orchard Homestead Resort, Mukim of Si Rusa, District of Port Dickson, State of Negeri Sembilan Darul Khusus.(b) The properties comprise 81 units of orchard homestead lot (sizes range from 43,438 sq feet to 92,128 sq feet), 109 units of bungalow lot (sizes range from 8,130 sq feet to 25,961 sq feet), 1 unit of commercial land (188,364 sq feet) and 1 unit of agricultural land (435,606 sq feet) situated within Orchard Homestead Resort, Port Dickson, Negeri Sembilan Darul Khusus.

How? Worth 16 million?


Moolah said...

RHB thinks otherwise.

From the Edge: RHB Research maintains outperform call on Fajarbaru

RHB Research maintains outperform call on Fajarbaru
Written by Financial Daily
Wednesday, 14 July 2010 10:44

Fajarbaru Builder Group Bhd
(July 13, 93.5 sen)
Maintain outperform at 93 sen with fair value of RM1.39: Fajarbaru has proposed to buy out the minority shareholders of Potential Region Sdn Bhd for RM16 million cash. Three individuals hold a combined 49.75% equity interest in the company, while Fajarbaru has a 50.25% stake. Potential Region holds 140.3 acres of freehold land in PD Homestead Resort, off Jalan Si-Rusa-Sunggala, Port Dickson, Negri Sembilan.

The price tag of RM16 million for the 49.75% stake in Potential Region is fairly consistent with the minority interests of RM16.5 million in Fajarbaru’s balance sheet (solely from Potential Region as it is the only non-wholly-owned subsidiary of Fajarbaru). This means that the transaction values the land effectively at its book value of RM46.2 million, or RM7.55 psf, at a premium to the asking prices of RM2.40 to RM6.05 psf in the Si-Rusa-Sunggala area in Port Dickson. However, we believe the premium is justifiable given that 91% of the land is already subdivided into orchard homestead/bungalow lots, 3% into commercial land with the remaining 6% carrying an agricultural land title.

We are neutral on the latest development. We believe Fajarbaru’s latest move is purely tactical, that is to have full control over Potential Region. We do not believe Fajarbaru is in a hurry to relaunch the PD Homestead Resort project, given the generally soft property market in Port Dickson. Ceterus paribus, the acquisition will reduce Fajarbaru’s net cash of RM123.7 million, or 74 sen per share as at March 31, 2010, to RM107.7 million or 64.8 sen per share.

Forecasts maintained as the interest income foregone on the RM16 million cash outflow will reduce FY2006/11 net profit by less than 1%.

The risks include new contracts secured in FY2006/11-12 coming in below our target of RM250 million per year and rising input costs.

We are positive on the construction sector as we foresee construction stocks to generally outperform the market in 2H2010, buoyed by news flow particularly from: (i) the RM36 billion Kuala Lumpur mass rapid transit (MRT) project; (ii) the RM7 billion Ampang and Kelana Jaya light rail transit (LRT) line extension project; and (iii) federal land deals. For Fajarbaru, additional kickers will come from its still undemanding valuations and a strong balance sheet with net cash of RM123.7 million as at March 31, 2010, translating to a whopping 74 sen per share. Indicative fair value is RM1.39 based on 10 times fully-diluted CY2011 EPS of 13.9 sen, in line with our benchmark one-year forward target PER for the construction sector of 10 to 16 times. — RHB Research Institute, July 13

This article appeared in The Edge Financial Daily, July 14, 2010.