Keladi: From Kulim To KL

In early July 2014, Keladi Maju announced that it has entered into an SPA to acquire 9 parcels of land in Mukim Batu, Kuala Lumpur from Goh Ban Huat (GBH) for RM192.4mil.

The 13.93 acres of land in Segambut consists of 6 parcels of freehold and 3 parcels of leasehold land. GBH's office, factories and warehouses currently sit on the land.

The purchase price should be about RM317 per sq ft.

GBH is another listed company which mainly involves in ceramic products manufacturing and trading.

Both GBH and Keladi have similar major shareholder & chairman which is Tan Sri Dato Tan Hua Choon. The purpose of the land sale by GBH is to partly fund its reversed takeover of Dynac to venture into Oil & Gas sector.

As Keladi is mainly a property developer which has development projects only in Kulim, Kedah, the injection of land in the country's property hotspot is definitely very positive for the group.

However, Keladi can't develop the acquired land in the near future, as it houses GBH's current operating facilities. Keladi has entered into a tenancy agreement with GBH to lease back the land & buildings to GBH at a rental of RM350,000 per month. The tenure is 2+1 years.

So it will be RM4.2mil pre-tax rental profit for Keladi. This is equivalent to 14% of its previous FY's PBT which seems not bad indeed.

But, its FY14's interest income of RM4.1mil will be reduced substantially for sure, and it has to start to serve the loan interest afterwards. 

It's likely that GBH will retreat from its ceramic business gradually and concentrate on its O&G venture.

As for Keladi, it has approximately 1,400 acres of land in Kulim district, where 667 acres of them is currently planted with oil palms.

At the end of April 2014, Keladi's net assets per share stands at 35sen. Most of the land are not revalued since 1990s.

Development
Mukim	Acres	Last Valued
Padang Cina	515	1996
Naga Lilit	102	1999
Sg Ular	18.36	2001
Padang Meha	65	1994
Sg Seluang	23.25	2006
Sg Seluang	9	2006
Lunas	13.6	2010
Plantation
Naga Lilit	667	1999

Keladi recent projects are Taman Lagenda near Padang Serai and Taman Kulim Square Indah near Kulim town. As at 31 Jan 2014, it has sold a total of 3,825 units of properties from these 2 projects, with nearly 100% take-up rate.

I feel quite surprise because it's hard for me to imagine that the property demand in Padang Serai can be so high.

Anyway, Keladi builds mainly low & medium cost affordable houses.

For FY15, besides continue to launch new phases for Taman Lagenda, Keladi also plans to develop 455 units of single storey terrace and 152 units of shop houses in Mukim Padang Meha which was converted from its plantation land. It may also launch Taman Puteri in Padang Serai which comprises 1,585 units mixed development.

Thanks to its high take up rate in recent launch, Keladi's financial performance has been good for the past 2 years. 

Revenue in FY13 rose tremendously due to high property construction billing, while the rise in PBT in the same FY was partly due to a fair value gain of RM30.3mil (re-measurement of an associate under liquidation to other investments).

Its PATAMI in FY14 is lower at RM21.5mil compared to FY13's RM53mil due to the one-off gain in FY13.

It is noteworthy that Keladi's PBT margin is always high at 40-50%. Its gross profit for FY14 stands at an impressive 53.4%.

Property development is its main earning contributor with 93% of total revenue. Its oil palm cultivation business is declining as more land was converted for property development.

RM mil	FY14	FY13	FY12	FY11
Property revenue	54.8	88.6	41.5	47.4
Property PBT	28.5	59.2	15.4
Plantation revenue	2.5	3.5	5.4	4.8

Base on FY14's PATAMI of RM21.5mil and total paid-up shares of 758.3mil, Keladi's FY14 EPS will be 2.84sen. Current share price of 35sen will give it a PE ratio of 12.3x.

Its latest FY15Q1 financial result (ended April 14) is not so good with poor revenue of RM7.9mil and lowest PATAMI (RM2.9mil) since FY11Q2.

Keladi has a strong cash flow & balance sheet with zero borrowing and RM152.7mil of cash (Apr14). Net cash per share is 20sen which is 57% of it net assets per share of 35sen. Its NAS will be much higher if its land are revalued.

Nevertheless, surely it will take loans to fund its KL land acquisition.

For me, I think it is more important to look at how well the company makes profit from its assets, not how many assets it owns.

Keladi is not too generous when it comes to dividend even though it is cash rich. It paid 0.5sen dividend per share for the last 3 years. For FY14, this will be about 18% payout from PATAMI, and a yield of only 1.4% at share price of 35sen.

So I don't expect it to pay more dividend when it turns into net debt after the land acquisition.

       Location of Kulim district

I'm not too sure about the property demand in Kulim but I'm not too optimistic. Furthermore most of Keladi's land are located far from Kulim town.

In the next 2-3 years, Keladi will not be able to develop its newly acquired land in KL.

However, there is one thing which may be very positive to Keladi - the proposed new Kedah International Airport.

In June 2014, Kedah's MB DS Mukhriz Mahathir has voiced his desire to build another International airport in Kulim.

The proposed 600ha site is located at Sidam, which is at the northern area of Kulim district close to Padang Serai town.

       Proposed new airport in circle; Kulim Hi-Tech Park in rectangle

As a major land owner in Kulim, the airport will surely benefit Keladi IF the plan materialized. Keladi's land in Mukim Naga Lilit, Padang Meha & Padang Cina are quite close but not too close to it.

The airport will certainly grow the population and business activities in southern Kedah and northern Penang. So it will benefit both states.

However, is it feasible to have another international airport so close to Penang International Airport (PIA) at Bayan Lepas?

It is reported that the necessity to build this new airport is because PIA is expected to reach its maximum capacity in 2 years. A lot of stress is given to PIA's reduction in cargo handling as passengers flights increase.

I get an impression from news report that the main reason is to make air freight more convenient to businesses in Kulim esp in Kulim Hi-Tech Park and even from southern Thailand. 

Can we build an international airport mainly to cater for air freight?

Who will take a flight from and to this proposed new airport? Probably it will serve the population in Sg Petani, Seberang Perai Utara & Kulim. Is the population huge enough to make an airport with 2 runways viable?

Anyway there are many things to consider and it should be left to those decision makers. If it will benefit the people more, then it is a good project.

If it ends up like Melaka international airport which is upgraded with RM240mil but has no plane landing there since Mac14, then it is a waste of tax payers' money.

Even an airport in International tourist city can't survive...

       Melaka International Airport: planeless

Keladi's share price is not undervalued at the moment and its near term prospect is a doubt. It will be more exciting if it is ready to develop its land in KL or the new airport gets a green light.