EDGEPROP. 15TH MAY: “We believe the premium is justifiable, given Radium’s encouraging profit growth (estimated at 70% in FY2024: FY2025: 36%), supported by strong demand for affordable housing in Kuala Lumpur, positioning Radium favourably to benefit from the market trend. Furthermore, we have taken into account Radium’s experienced management team, superior margin and return on equity (ROE) in our valuations.”
TA Securities Research has valued Main-Market bound Radium Development Bhd at 51 sen per share, implying a financial year ended Dec 31, 2021 (FY2021) price-earnings ratio (PER) of 17.1 times, due to strong demand for affordable housing in the capital.
“We fairly value Radium at 51 sen share based on FY2024 earnings per share of 3.5 sen, and a target PER of 14.5 times. Our target PER of 14.5 times is at a premium to the market-capitalised weighted average implied target PER of 13.2 times for developers, with a market capitalisation above RM1 billion.
“We believe the premium is justifiable, given Radium’s encouraging profit growth (estimated at 70% in FY2024: FY2025: 36%), supported by strong demand for affordable housing in Kuala Lumpur, positioning Radium favourably to benefit from the market trend. Furthermore, we have taken into account Radium’s experienced management team, superior margin and return on equity (ROE) in our valuations,” said the research house, which does not have a rating for the stock. TA noted that Radium’s estimated ROE of 10.7% in FY2023 is expected to increase to 12.9% in FY2024, and 15.9% in FY2025.
Radium, which is slated to be listed on May 31, will have a market capitalisation of RM1.73 billion upon listing, based on an enlarged share capital of 3.47 billion shares at 50 sen per share.
Post IPO, the promoters and substantial shareholders are expected to own about 74.97% of Radium, leaving the remaining 25.03% as free float.
The IPO exercise is expected to raise RM434 million, and the proceeds will be used for land acquisition, repayment of borrowings, hotel construction working capital, and listing expenses.
On the financial front, TA Securities projected the group’s earnings for FY2022 to have declined by 22%, and by 9% for FY2023, with core net profit of RM79.2 million for FY2022 and RM72.3 million for the year after, due to the absence of new launches between 2021 and 2022, and the completion of both Residensi Semarak Platinum and Residensi Vista Wirajaya in 2021, and PV9 @ Taman Melati in November 2022, as well as the scheduled completion of Residensi Vista Sentul in the second quarter of this year.
“However, we anticipate a rebound in Radium’s financial performance in FY2024 and FY2025, with projected earnings growth of 70% and then 36% to reach RM122.8 million (FY2024) and RM167.1 million (FY2025),” said the research house in a note.
“The growth will be driven by higher property sales and construction progress for projects launched in FY2023 and FY2024, reaching significant billing stages,” it added.
According to Radium’s pro-forma balance sheet post IPO and utilisation of IPO proceeds, the group’s financial pollution will strengthen further to net cash of RM323 million or 9.3 sen per share, from RM37.15 million or 1.1 sen per share as at end-2021.
It has a dividend policy to distribute at least 30% of net profit to shareholders, commencing from FY2022.
Based on its earnings forecasts, TA expects the group to pay dividends of between 0.7 sen and 1.55 sen per share from FY2022 to FY2025, premised on a payout ratio of 31% to 35%.
“This would translate into dividend yields of 1.4% to 3.1%, based on [an] IPO price of 50 sen per share,” said TA Securities.