FCW/GBH… dated April 2011

Both which have Tan Sri Robert Tan as a common and substantial shareholder, have a total of 30.59 acres of land in Segambut, located strategically next to Mon’t Kiara.

Any potential development of the land is likely to spark interest in the two companies as they do not have strong core businesses to generate attractive profile.

GBH is looking the feasibility of developing the land. The company will make the necessary announcements when such plans materialize. As for FCW, it has been a long term plan of the board to earmark the property for redevelopment, but it has yet to embark on any development plan.

FCW bough its 15.73 acres tract in 2007 from GBH at rm86 million cash and subsequently leased back to the latter for its warehousing needs. The land was valued at rm88.26 million as at Aug 2 2010. This translates to about rm129 psf. Meanwhile, GBH’s parcel of 14.86 acres was valued at rm119 million or rm194 psf. The value of the land booked by the two companies is relatively lower than the transacted prices in that area.

As FCW and GBH’s market cap was rm128.7 million and rm329 million respectively based on 07 April 2011 closing price. If the land were developed over 10 years at a 15% profit margin, the two companies could book a total profit of rm41.25 million annually.

The Segambut land’s potential is not reflected in the market cap of both companies, although both FCW and GBH are trading at a premium to their book values. FCW and GBH net assets per share stood at 64.98 sen and rm1.02 as at 31, Dec 2010 respectively. That is because the market value of their land is not reflected in their books.

FCW’s profit for six months ended Dec 31, 2010 with 60.44% from the lease of its Segambut land and warehouses to GBH. Its telecommunications division and contract manufacturing business brought in only rm1.79 million.

Besides the sustainability of the income stream from GBH is uncertain as the clay pipes and sanitary ware marker is still in the red. Nevertheless, competition in the ceramic building materials industry remains intense with imports from China . So unless GBH returns to the black with a sound core business, its ability to pay FCW rent totaling rm5.3 million a year remains uncertain.

But what is certain is that both companies have plans to develop the 30.59 acres of land. And considering its proximity to Mon;t Kiara and Sentul East along Jln Ipoh, the potential development could lead to a possible re rating of both companies when a development plan is finally unveiled.